By Paul Sandle
LONDON (Reuters) - Sky (L:SKYB) shares jumped 9 percent on Monday to within touching distance of what Comcast (O:CMCSA) will pay to buy Europe's biggest pay-TV group after seeing off competition from Twenty-First Century Fox (O:FOXA).
The U.S. cable-TV giant offered $40 billion (30.4 billion pounds) in a rare weekend auction that brought to an end its battle against Rupert Murdoch's Fox and Walt Disney Co (N:DIS), which would have been Sky's ultimate owner if Murdoch had succeeded.
However, concerns about the premium Comcast had paid were reflected on the stock market in New York where Comcast's shares lost more than 6 percent.
Analysts at MoffettNathanson downgraded Comcast from "buy" to "neutral" and Oppenheimer downgraded from "outperform" to "perform". Fox shares, in contrast, were up 0.6 percent and Disney gained 1.7 percent.
Both Comcast and Fox/Disney had wanted control of Sky to increase their reach in Europe, where pay-TV is growing, and to gain access to Sky's 23 million customers which would bolster their defence against streaming services from Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN).
The prize was valued far higher by Comcast in the third and final round of the auction when it bid 17.28 pounds while Fox offered only 15.67 pounds, below the level at which Sky shares were trading on Friday. Sky shares stood at 1721.5 pence at 1350 GMT on Monday.
Comcast, which owns the NBC network and Universal Pictures, swiftly received the backing of Sky's independent directors.
Comcast is paying a high price - more than double Sky's share price before Fox made its initial approach in December 2016 when it offered 10.75 pounds per share.
One senior analyst at a London-based hedge fund firm said it was an "incredible outcome".
"Not only the absolute number but also the gap between both offers, which could lead to Fox/Disney selling their stake (or part of it at the very least), thereby de-risking the Comcast offer which is conditional to the more than 50 percent acceptance condition," he said.
Research firm MoffettNathanson said it feared Sky would be an albatross to Comcast.
"Comcast would like to have investors view Sky as a platform-agnostic collection of proprietary programming agreements that can serve as a springboard to create a global OTT (over-the-top) provider, and, to be fair, the company does indeed have many proprietary programming agreements," it said.
"But it seems as though they would like investors to forget that it is also a satellite TV provider, and satellite video distribution is increasingly becoming obsolete."
FOX HOLDING
The big hurdle to Comcast's ambitions is the 39 percent of Sky that Fox owns, and which it has agreed to sell to Disney in a separate wider $71 billion deal.
Fox's holding, which Comcast's offer values at more than $15 billion, stems from Murdoch's role in the creation of the company as a pioneer in British pay television nearly three decades ago.
Fox/Disney have not said whether they will accept Comcast's offer. Without that holding, Comcast will need about 82 percent of the remaining shares for its bid to cross the threshold for acceptances.
Analysts at Royal Bank of Canada said if Fox/Disney do not tender their shares Comcast would be unable to de-list Sky or squeeze them out.
"This could be used as leverage by Disney in return for distribution rights, or as part of any future asset swap," they said on Monday.
Sky operates in European markets such as Britain, Ireland, Germany and Italy. The deal also gives Comcast an immediate beachhead in online video streaming with its Now TV business, which has about 2 million customers.
Comcast Chief Executive Brian Roberts has praised Sky's technology after quietly testing it on a private visit to a shopping centre on a previous trip to London.
Analysts see Comcast super-charging Now TV to combat Netflix across the globe. And Sky's relationships to distribute HBO entertainment content and Premier League soccer further insulate Comcast over the next few years.
The deal with Disney will leave Fox to focus on assets such as Fox News Channel and its broadcast of sports such as National Football League and Major League Baseball.