Imagine if Polo Tang was Sky’s senior independent director. The UBS analyst has just raised his target price for the satellite broadcaster to £13.70 a share. So, you’d think he’d have held out for a bit more than Martin Gilbert, the real Sky SID. He’s just agreed a £10.75-per-share cash offer from 21st Century Fox for the 61 per cent of the business it doesn’t already own, valuing the company at £18.5 billion. How come, you ask, when the likes of Mr Tang reckon that, “after a period of heavy investment”, Sky’s profitability is about to ramp up? He forecasts £2.3 billion of operating profits by 2020, £700 million more than Sky made last year.
And, who knows, he might even be right. Yet, that’s not quite the point. Mr Gilbert, the Aberdeen Asset Management boss, and the rest of the independent committee had to judge something else: whether the offer from the Rupert Murdoch-controlled 21st Century Fox should be put to Sky’s investors. And, here, it’s hard to disagree with Mr Gilbert that he had no choice but to let them decide the merits of a bid at a 36 per cent premium to the previous close — or 40 per cent before the offer started to leak.
The committee had already rebuffed two offers, thought to have started at about £10 a share — and the higher price was conditional on a board recommendation. True, the dollar’s post-Brexit vote strength helped. But the Murdoch bid is still at a larger premium than most involving big minority shareholders. Twenty per cent is the going rate: what British American Tobacco offered in October for the 58 per cent of Reynolds it doesn’t own. The committee’s also insisted that the bid is approved by a majority of independent shareholders, even if it gets changed from a scheme of arrangement to an offer, while there’s a £200 million break-fee too.
True, the committee’s view that £10.75 was the max 21st Century Fox could produce without a capital raise is less persuasive, while the extra 10p special dividend should the bid drag into 2018 is the least you’d expect. But investors would have been furious if Mr Gilbert had simply batted the bid away.
Besides, there’s a long way to go: a year of political and regulatory scrutiny. And maybe it’s telling that 21st Century Fox has not made its offer final: a bit of room for a bump, then, if hedge funds flood the register and demand one. There’s another issue too: not everyone is quite as keen on Sky’s prospects as Mr Tang, fretting about ageing satellite technology, competition from Netflix or those illegal sports streaming sites showing the big match. Last month, analysts at Bank of America Merrill Lynch came up with a price target of £4 a share. Add it up, then, and Mr Gilbert has done his job for Sky shareholders: given them an offer to argue about.
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More punches?
Pub brawls are rarely fair fights, as Alan McIntosh is finding out. The former Punch Taverns finance director already had a scrap on his hands taking on both Heineken and Patron Capital for the 3,275-strong pub chain. Now he’s also up against Punch’s board and its top three investors: Glenview Capital, Avenue Capital and Warwick Capital Partners, together with 52.3 per cent of the shares, including the directors’ stakes.
They’ve rowed in behind a recommended 180p-a-share break-up bid that values the debt-laden pub chain’s equity at £403 million — lob in its borrowings and it adds up to £1.78 billion. It’s 6p per share more than the Heineken/Patron combo were touting on Wednesday and is cheekily termed a “final cash offer”. That might look odd, given Mr McIntosh’s Emerald Investment Partners, with 2.2 per cent, has proposed a 185p-a-share bid, subject to due diligence and financing. But there is a twist: the three big shareholders can drop their irrevocables only if a rival bid comes in at 200p or more. So, now Mr McIntosh needs to find even more money, after which his rival can drop the “final” and rebid.
Punch shares rose 8 per cent to 191p, hinting that the market is split on Mr McIntosh. If it was sure he’d bid, they’d be pushing 200p.
Train reaction
Here’s some cheery news for those stranded Southern Railway passengers: the company behind the operator, Govia Thameslink Railway, reckons it deserves reimbursing for not running the trains.
Go-Ahead, the 65 per cent owner of GTR, is in talks with the Department for Transport over its “contractual claims”, resulting from the RMT and Aslef strikes. It’s claiming “force majeure”. And guess what? It might even have a case for a refund of several million pounds.
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Those are its penalties under the railway performance regime. They’re just about the only financial hit it suffers thanks to the DfT’s bonkers £8.9 billion GTR contract that left the company on the hook for the costs of operations but sees it pass ticket sale revenues to the government. One contractual requirement is the introduction of the driver-only operated trains at the centre of the dispute. Can’t say it hasn’t been trying.
Legal eagles
Who’d ever have guessed, if it wasn’t for a 518-page Competition and Markets Authority report? Apparently, the market for legal services is a bit of a rip-off, not that the CMA’s brainiacs put it that succinctly. And, as usual with the competition wonks, the main solution seems to be a price comparison website, the perfect tool for comparing bewigged QCs. One other thing: the CMA seems to think “the price for a specifically defined complex divorce scenario with a dispute over assets may vary from around £1,260 to £3,000”. Try telling that to Brad Pitt and Angelina Jolie.
