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Sky's football win threatens own goal for Murdoch takeover as pressure to increase bid mounts

Christopher Williams
Sky's positive football result further complicates Fox's takeover - PA

The Murdoch clan are under mounting pressure to increase their takeover bid for Sky in the wake of the pay-TV giant’s successful Premier League rights auction.

Sky retained its status as the dominant Premier League broadcaster and slashed its annual bill by nearly £200m, prompting renewed calls for a more generous offer from 21st Century Fox.

Investors rushed to buy Sky shares in the hope of making a quick profit when the deal for the 61pc of the company not controlled by the Murdoch family is completed.

Heavy trading drove the price up 2pc to £10.82, above the £10.75 offer as confidence increased that Fox will be forced to improve its bid after more than a year of regulatory wrangling.

Analysts said that the value of Sky had been boosted by £2 per share by lower football costs. The Premier League’s failure to attract new money from US tech giants punctured City predictions that Sky’s bill would increase as much as 45pc, on top of painful 83pc inflation at the prior auction three years ago.

TV times | Premier League deals at a glance

Sky shareholders are preparing to face down Fox when the deal is put to a shareholder vote, potentially in early summer if Fox strikes a deal with competition watchdogs and the Government on the independence of Sky News.

Fox is pursuing a scheme of arrangement, a method of takeover that seeks the backing of the courts. Compared with a simple takeover offer it has a higher threshold for approval but makes it easier to force out opponents. 

Under a scheme of arrangement only around 15pc of shareholders could block Fox's bid.

Under a simple takeover offer, meanwhile, half of the independent shareholders, more than 30pc of the total, would be required to stop Fox gaining control. However, a band of just 6pc could cause trouble by refusing to sell.

Sky cautioned investors that lower Premier League costs do not necessarily mean higher profits as the cash will be redeployed in other battles such as tackling the threat from Netflix in big budget drama. Nevertheless, the company’s strengthened finances mean its independent directors, led by deputy chairman Martin Gilbert, will be under pressure to renegotiate forcefully with Fox.

Aggressive hedge funds, including specialists in making fast money on takeovers such as Paul Singer’s Elliott Management, have built up sizeable stakes in Sky. Some hedge fund managers, including Rupert Murdoch’s former son-in-law Crispin Odey, have already made repeated public demands for a price bump.

The hinges on what proportion of Sky shareholders are ready to vote against a scheme of arrangement at £10.75 per share. The scale of the challenge faced by Fox is currently impossible to judge from public disclosures as many shares are held via banks with the true owners concealed.

Sky deputy chairman Martin Gilbert Credit: Simon Dawson/Bloomberg

More traditional City institutions could back the hedge funds too. When Fox’s bid was first revealed in December 2016, Standard Life joined calls for a more generous price, saying £10.75 should be a “starting bid” only.

The investor has since merged with Aberdeen Asset Management, a deal that made Mr Gilbert its joint chief executive. Standard Aberdeen today declined to comment on the Sky takeover.

The Murdoch family may resist any attempt to squeeze more cash from Fox. Their options are complicated by their deal to sell Sky and most of Fox’s other assets on to Disney. A significantly higher price for Sky could in turn force Fox to seek a higher price from Disney.

Instead Fox could opt to abandon a scheme of arrangement and pursue a simple takeover offer. Such a move could require the agreement of Sky’s independent directors, who would have to judge the risk of their suitor walking away if they refused. Fox could abandon the deal and sell only its 39pc stake to Disney.

Analysts at Square Global Markets claimed it is now “highly probable” that Fox will switch to a simple takeover offer to gain control of Sky.

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The hedge funds targeting Sky have a backup plan if their attempt to force a higher price from Fox fails. The Takeover Panel is considering whether Disney should be compelled to make its own bid for Sky because the company is a “significant purpose” behind its deal with Fox.

Sky and Fox declined to comment.