Valuation and pricing lessons from the battle for Sky

Valuation and pricing lessons from the battle for Sky

A recent finance editorial in The Guardian on the 21st Century Fox versus Comcast battle for BSkyB was critical of the Sky independent directors. It felt they should be embarrassed at recent events and should realise that valuation is art, not science.

Too good to miss?

Paraphrasing the argument - in 2016 the independent directors felt a £10.75 per share cash offer was too good to miss.  Their thinking was surely offers 40% above the previous week’s share price don’t come along too often. But at that time the share price had fallen from £11 in April 2016 to 769p as the market fretted about the threat posed by Netflix and BT. Fears about Brexit probably didn’t help either. But at the same time, based on the fundamentals including the benefits to be derived from Sky Italia and Sky Deutschland, some analysts reckoned a fair price for Sky was £13.70.

Now in 2018, with the political and regulatory issues behind them the real bidding has begun and the action is around the £14.00 to £14.75 range - so far.

Price v Valuation

This is all about price versus valuation. So what to learn? Well the discussions at the board level are of course mostly about price. First time around in a jittery market, amidst fears about market trends (the threat from streaming), and with Fox being the only bidder, the independent directors view on price wasn’t too bullish on which a deal could be agreed. At that time an analysts’ valuation opinion based on fundamentals was clearly suggesting something much higher – I’d be surprised if that wasn’t also the view in the Murdoch camp.

Now it looks so different.  Better performance, better market sentiment, and true competitive bidding is driving a value c£7Bn higher than before! In hindsight, no wonder Sky shareholders were angry in 2016.

The need for competition to get the best price

Taking the lesson a step further this really underscores the need to sell your business at a time of your choosing and to get a competitive process going. It also demonstrates graphically how much higher a price you can obtain as a result of real competitive tension between strategic buyers.

The Guardian article referenced in this blog was written by Nils Pratley.


Lake Falconer

Corporate Finance Partner
Lake leads the PEM Corporate Finance team on MBO, acquisition, disposal, succession and strategic planning. He also heads up PEM’s valuation team providing business valuations for shareholder exits, disputes, business planning and regulation. Lake has over 30 years' senior level experience as a business adviser and as a manager in industry. He holds the ICAEW corporate finance qualification.