Comcast at a Crossroads as Global Ambitions Hinge on Sky Bid

(Bloomberg) -- The future of Comcast Corp., that quintessential American cable company, will be decided in London.

Now that it has dropped its pursuit of 21st Century Fox Inc.’s Hollywood assets, the Philadelphia-based giant has turned its full attention across the Atlantic to a separate battle with Walt Disney Co. over the British pay-TV provider Sky Plc.

Sky, with 23 million subscribers in five European countries, would instantly give Comcast something it currently lacks: a global presence.

“That’s the asset they’ve really wanted all along, so it seems much less likely that Comcast will withdraw without at least a few more rounds of bidding,” Craig Moffett, a longtime media analyst at MoffettNathanson who recommends buying the shares, said in a note titled “OutFoxed.”

The small cable system founded more than half a century ago by Chief Executive Officer Brian Roberts’s father is already a cable and entertainment behemoth with assets such as the Universal Studios and NBC network. Although Fox’s studios and TV channels would have been a good addition, Sky would take Comcast to the next level -- an international hedge against the erosion of cable-TV viewing in the U.S. and competition from streaming services like Inc. and Netflix Inc.

Comcast has the upper hand in the bidding war over Sky after increasing its offer last week to 26 billion pounds ($34 billion), topping Fox’s proposal. Now, as Rupert Murdoch’s Fox -- which owns 39 percent of Sky -- and Disney decide whether to counterbid, Comcast stands at a crossroads.

Earlier this week, Disney spelled out for investors that Fox may choose not to increase its takeover offer for Sky. That has fueled speculation that Comcast could take control of the U.K. pay-TV operator while Disney acquires Fox’s assets.

Now that Disney CEO Bob Iger has won the Fox contest, it remains unclear whether he would be willing to part with Fox’s 39 percent stake in Sky. If Disney doesn’t, it creates the potentially awkward dynamic of Comcast and Disney jointly owning Sky. Disney declined to comment on its plans.

Comcast bowed out of the battle over Fox after concluding the price was too high, according to a person familiar with the decision. Comcast shares jumped as much as 3.7 percent on Thursday, a sign investors are relieved that bidding contest is over. Disney also increased, as much as 3.6 percent.

“Assuming Disney cedes Sky to Comcast, it looks like both Disney and Comcast will get most, but not all, of what they need to compete going forward,” said Paul Sweeney, an analyst at Bloomberg Intelligence.

Comcast’s Roots

Comcast, founded in 1963 by Ralph Roberts with the purchase of a 1,200-subscriber cable system in Tupelo, Mississippi, is now the largest U.S. cable company with about 22 million TV subscribers.

London-based Sky is almost a mirror image, with customers in countries including the U.K., Italy and Germany. Sky would also give Comcast a high-tech set-top box called the Q, and premium TV content to lure and retain subscribers, including rights to the lucrative British Premier League soccer.

On Friday, Comcast filed its offer documents for Sky, whose shareholders have until Aug. 22 to complete the document and tender their shares to Comcast. Once Comcast gets to 50 percent plus one share, it will own a majority of the European pay-TV provider.

The stakes are high for CEO Brian Roberts, who’s helped transformed his father’s business into the juggernaut it is now. Losing Sky would mean coming away empty-handed in another major acquisition attempt after failing to complete three other megadeals -- including a hostile bid for Disney in 2004.

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