Rupert Murdoch's Nightmare Scenario for Comcast

(Bloomberg Opinion) -- Anything you can do, I can do better. That appears to be the message from Brian Roberts to Rupert Murdoch, judging by the Comcast Corp. CEO's latest attempt to foil the billionaire's 25 billion-pound ($33 billion) takeover of British satellite broadcaster Sky Plc.

The puzzle is why Comcast didn't attempt to land a knock-out blow when it submitted a counterbid late on Wednesday.

Comcast's 14.75-pounds-a-share offer is 5 percent more than the 14 pounds Murdoch's Twenty-First Century Fox Inc. put forward earlier the same day.

The speed of the counterattack may send a message — but the level, less than the 15 pounds Sky stock has been flirting with, is almost begging for its own retaliation.

The rational explanation would be that the bidders are all approaching the pain barrier. Factor in a break-up fee, and Fox's offer is effectively made up of 13 pounds from the company itself, with Walt Disney Co., which is separately seeking to buy Fox's entertainment assets, chipping in another pound.

That bump reflects the likelihood that Britain's takeover watchdog will force Disney to make a bid for Sky at 14 pounds a share or more because Fox's influential 39 percent stake in Sky would let Mickey Mouse win control of the British broadcaster through the back door.

Either way, the price differential seems revealing of what Fox might be willing to pay for Sky if it wasn't being taken over itself.

As for the Comcast offer, it's a nosebleed 14.7 times Sky's trailing Ebitda.

The reality is more likely to be that this is all about tactics rather than price discipline. Sky is a strategic asset offering its U.S. suitors the opportunity to grow in Europe, where pay TV is a less mature business. No other European media company can offer a comparable platform for expansion.

So the auction is both about owning Sky and preventing someone else from owning it. That is how Roberts and Bob Iger, his Disney counterpart, would justify another round of bidding.

For Comcast, the nightmare scenario would be if Fox were able to buy 11 percent of Sky in the market, taking its holding to more than 50 percent, and gained board control. That would kill the auction. Sky's board has shrewdly closed off this option by getting Fox to sign an agreement that prevented it from upping its stake further.

But Sky could try to negotiate a fantastic price from the Fox-Disney alliance in return for scrapping this accord. The company has said the agreement keeps the process competitive. That suggests that so long as it believes there's the slightest chance of a counterbid, it will never assent to Fox buying Sky shares in the market.

Comcast therefore needs to keep looking like a threat, and rapid incremental bids sustain that impression. Sky's board may try to use the agreement to wring an unbeatable offer out of Fox as the auction nears its last gasp — but we're not there yet.

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