Sky shares rallied over 20% yesterday, climbing after a $22.1bn bid from US media giant Comcast for the business. The all-cash offer of £12.50 a share saw the price rally to a high of $13.55, before closing at £13.28, 6.2% higher than the offer. But why did shares top the offer price, and why are they up again today?

Comcast’s bid comes hot on the heels of an improved offer of £10.75 from US rival 21st Century Fox (from £10 initially) for the 61% of Sky it doesn’t already own and an agreement by Fox to sell a swathe of its assets to Disney, the world’s largest media company at $165bn.

Having carefully negotiated the sale of assets to Disney, and sidestepped regulatory hurdles in the UK to address competition concerns and media plurality, the Comcast bid came out of left-field to surprise Fox, its owner Rupert Murdoch and investors alike. It also raises questions over the likelihood of the Fox/Disney deal to go through should Comcast steal the deal.

Comcast, the $184bn behemoth, has much less on an international audience; only 9% of the group’s total revenues are generated outside of the US. This means that if Comcast is successful with its bid, it would likely face reduced scrutiny over competition concerns and subsequently be approved by the UK’s Competition and Market Authority (CMA) much faster than any Fox-Sky deal.

However, the rival bid from NBC parent Comcast has sparked speculation that it could incite a bidding war for Sky, with an incensed Murdoch – having all but solved the complexities of the acquisition by introducing the sale of assets to Disney – further increasing his bid for the slice of Sky not yet under his control which still eludes him; a tie up between his News Corp business and Sky (then known as B Sky B) was withdrawn in 2011 amid the UK phone hacking scandal.

Furthermore, with Comcast entering the picture, Disney may choose to go it alone in its pursuit of Sky, ditching its partnership with Fox in order to simplify the process and face reduced regulatory hurdles. After all, Sky is the jewel in the Fox crown, with its scalability what Disney (and Comcast for that matter) is really after: Disney would consolidate its position as the number one global media company with a major UK business, while Comcast would finally have a truly global presence alongside commanding the rights to the Premier League on both sides of the Atlantic.

Consequently, shares have rallied above Comcast’s £12.50 bid price as investors prepare themselves for a face-off between Fox/Disney and Comcast. While the share price hasn’t yet topped yesterday’s £13.28 highs, shares are continuing to trade above the Comcast offer price, suggesting confidence in a protracted bidding war between the two (or even three) sides remains high.

But will they deliver on a feisty exchange of extravagant bids or leave investors disappointed by a lack of one-upmanship? Today’s buyers will be hoping for the former as we await Murdoch’s next move.

Henry Croft, Research Analyst, 28 February 2018