Takeover Cops Put $17 Billion Cuffs On Mickey Mouse

(Bloomberg Gadfly) -- British M&A regulators have called out Mickey Mouse. The U.K. Takeover Panel ruled on Thursday that Walt Disney Co. should make an 11.7 billion pounds ($16.7 billion) takeover bid for Sky Plc if it succeeds in acquiring the satellite broadcaster's lead shareholder, 21st Century Fox Inc. This isn't a major problem for Disney -- the price is a bargain -- but it changes the dynamics of the battle for Sky.

The panel's justification is that it reckons a big reason behind Disney's December agreement to buy most of Fox was in fact to control Sky. After all, Fox already owns 39 percent of Sky and is bidding to buy the rest.

Disney had protested otherwise. Given it stood to inherit at least a major stake and potentially the whole of Sky, that was always going to be tough to argue convincingly.

The mandated offer price is low. The Panel has set this at the 10.75 pounds level offered by Fox back in December 2016. This seems academic. Sky's current share price is about 13.14 pounds. If Fox wins regulatory approval, shareholders will almost certainly demand it sweetens its offer. Meanwhile, there's Comcast Corp. dangling a non-binding 12.50 pounds a share proposal.

Takeover Cops Put $17 Billion Cuffs On Mickey Mouse

If the Fox bid isn't cleared, Comcast walks away and Sky's performance deteriorates rapidly this year, the mandatory Disney offer puts a floor under the shares. 

This complicates the current situation. It could make it harder for Fox to try preempting Comcast by merely matching its proposal. Sky's board would then feel emboldened to demand something around the current share price, knowing there's a backstop bid. 

Mandatory offers of this kind are extremely rare. The panel determined the price should be the one attributed by Disney to Fox's Sky shareholding when it formulated the Fox bid, and said evidence from both sides supported that.

Still, it's a shame for Sky shareholders that their board didn't persuade the panel to force a bid at a higher level. The price offered by Fox 16 months ago was set in anticipation of a long regulatory and political battle. But if Fox raises, the Sky board will have a chance to argue that a mandatory Disney bid should be raised too. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

To contact the author of this story: Chris Hughes in London at chughes89@bloomberg.net.

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