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EXPLAINER-Comcast and Murdoch in regulatory race for Sky approval

From Reuters - March 9, 2018

LONDON (Reuters) - Comcasts (CMCSA.O) gatecrashing of Rupert Murdochs eight-year campaign to buy pay-TV group Sky (SKYB.L) has sparked a regulatory race with 21st Century Fox (FOXA.O).

Fifteen months after finally agreeing a takeover of Sky, Murdoch had been edging toward approval by offering remedies to overcome long-held concerns that he holds too much media sway in Britain, where he owns the Sun and Times newspapers.

But Comcast, the owner of NBC and Universal, has made investors a higher offer with no political baggage for a business that Murdoch helped to launch and owns 39 percent of.

Fox has called on regulators to submit Comcast to the same lengthy scrutiny it received, but competition lawyers say it could gain clearance in a relatively fast probe.

COMCASTS OFFER

Comcast offered 12.50 pounds per share, or 22.1 billion pounds ($31 billion). It has not yet made a firm bid and is sounding out investors through its brokers, BAML, sources say.

It wants to own all of Sky but will accept taking control with 50 percent plus one share if Fox decides not to sell its 39 percent stake. Fox has a separate deal to sell assets to Walt Disney (DIS.N), including Sky.

FOXS OFFER

Murdoch agreed to buy the 61 percent of Sky it did not already own in December 2016 for 10.75 pounds per share, valuing the entire business at 18.5 billion pounds.

This followed a failed attempt to buy Sky in 2010, which collapsed when journalists at one of Murdochs papers admitted hacking into phones to secure news, sparking a criminal trial, a public inquiry and questions over his role.

LEVEL OF ACCEPTANCE

One person familiar with the matter said Comcast was asking hedge fund managers how much Sky stock they controlled, indicating a belief that Fox will hold on to its stake and setting the stage for a lengthy battle.

UBS said the price could go as high as 1400-1500 pence.

Comcast will need 82 percent acceptance from independent Sky shareholders while Fox is targeting 75 percent, meaning 15 percent of independent investors could block the deal.

COMCASTS REGULATORY CHALLENGE

Comcast is providing information to the European Commission and believes it can get approval in the so-called Phase 1 of the investigation, avoiding a prolonged process. It could take several weeks before Comcast files a formal notification.

Brussels will examine whether a Comcast-owned Sky could be anti-competitive when dealing with rival channels on its platform and whether there is a threat from putting Sky in the same company as film studio Universal.

The regulator could also consider if Sky would be owned by companies holding three of the six major film studios if Comcast owns 61 percent and Walt Disney retains Murdochs 39 percent.

Comcast would argue that were Fox or Disney to retain 39 percent, they would be a financial investor with no commercial or operational link with Sky.

In terms of previous conduct, Comcast was accused by U.S. regulators in 2012 of breaching a condition imposed when it bought NBC Universal, by discriminating against rivals in favor of its own channels when placing them on the program guide.

FOXS REGULATORY CHALLENGE

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