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Article Image - How Could 21st Century Fox’s Acquisition of Sky Affect Share Prices?
Posted 9th May 2017

How Could 21st Century Fox’s Acquisition of Sky Affect Share Prices?

The 21st Century Fox brand (listed as FOXA on the stock market) is one of the biggest known names in entertainment.

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How Could 21st Century Fox’s Acquisition of Sky Affect Share Prices?
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The 21st Century Fox brand (listed as FOXA on the stock market) is one of the biggest known names in entertainment. Having rebranded from the original 20th Century Fox name to avoid appearing to be stuck in the last century, the iconic logo screened before Fox productions is one everybody is familiar with, and people all over the world are also familiar with their TV channel brands such as Fox News and Fox Sports.

In Europe, including in the UK, Sky is just as much a household name. Sky was the company that had the biggest satellite dish TV penetration in Europe back in the pre-digital TV days, and is now a major provider of pay TV services in countries all across Europe.

21st Century Fox to Fully Acquire Sky

21st Century Fox has recently been given permission by the European Commission to fully acquire Sky, a business it already had a 39% stake in. The acquisition is to cost Fox $14.3 billion, and will give Fox ownership of all of Sky’s brands, including its on demand platform Sky Go, and it’s set top box based platforms Now TV and Sky Q. Fox also owns the STAR pay TV brand which is the equivalent of Sky in the Asian market, and is likely to want to more closely align the two operations in order to streamline how that area of its business is strategised for.

Does This Mean Sky Will Be Launching in the US?

While Fox is a US based company and seen very much as an American brand, it was announced in their 2017 2nd quarter earnings call that there were no plans to launch Sky in America as yet, and the acquisition is about strengthening Sky in Europe. Equally, they plan to focus on strengthening STAR in Asia rather than bringing that brand stateside. This is potentially reassuring to investors looking at the strategy of the business, as it seems FOXA are not banking on a successful US launch for a European brand in their approach to growing Sky under their ownership.

Why Should Shareholders Be Encouraged By this Acquisition?

In the same Q2 earnings call for 2017, Fox explained that there is expected to be a leverage ratio of 4x on the proforma balance sheet after the acquisition of Sky is complete, but they expect this to rapidly de-lever to manageable levels in the following two quarters. They encourage shareholders and potential stock market investors to look at the growth and popularity of Sky and its portfolio of offerings in Europe.

Sky was providing 13 million people with streaming services in the last fiscal quarter, and these subscribers watched over 20 billion minutes of content through Sky’s ‘OTT’ services (OTT meaning ‘over the top’, describes the services subscribers can get on top of a base TV package). The rate of paid TV uptake in Europe is also expected to continue to rise, with Western European pay TV penetration expected to be at 60.4% in 2020, an increase of 5.4%. Fox believe that the diversity and flexibility of services now made available by companies like Sky is what is driving more people to want pay TV, and plan to strategise so that Sky can win the lion’s share of that 5.4%.

Fox’s reasoning and plan for taking ownership of Sky seems like a sound one, so it will be interesting to see how their stocks fare on the markets in the next few quarters.

Categories: Finance, M&A, Strategy


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