Fox is close to an agreement to sell stakes in two European pay-TV companies, Sky Italia and Sky Deutschland, to British Sky Broadcasting for $US13.5 billion, Bloomberg’s Matthew Campbell, Alex Sherman and Manuel Baigorri report.
The company is reportedly considering using some or all of this cash to increase its bid for Time Warner.
This cash infusion could allow Fox to raise its bid for Time Warner to about $US100 a share without taking on any new debt or issuing new shares.
Time Warner has about 900 million shares outstanding. If Fox used all the cash from the asset sales to boost its bid (and there was no tax hit), the increase would amount to $US15 per share.
The cash portion of the new bid for Time Warner would then be about $US47 per share (up from $US32.42). The initial bid also included 1.531 shares of Fox shares per share, or about $US50 at Fox’s current price. If Fox kept the share portion of the bid the same, therefore, the current value of the offer would be about $US97.
Using the asset sale proceeds to boost the bid would also have the effect of increasing the cash percentage of the purchase price, which would dampen another concern that some Time Warner shareholders had about the offer — the fact that too much of it was coming in the form of Fox stock.
After Fox announced its bid for Time Warner last week, Time Warner shareholders had two primary concerns: Price, and cash/stock mix. The early consensus was that, to get a deal done, Mr. Murdoch would have to increase his bid to about $US100 per share and increase the cash portion of the purchase consideration. The expectation was that he would soon do both.
The cash proceeds from Fox’s European asset sales could allow Fox to easily raise its bid to ~$100 and increase the cash portion of the purchase price, all without having to take on more debt.
And if that isn’t enough, Credit Suisse suggested last week that Fox could also sell its 39% ownership of British Sky Broadcasting for another $US10 billion.