It’s not worth spending too much time on the rumor that Vivendi is pondering a purchase of Sky in Europe, to go with its Canal+ offering, partly because no bid has yet been made and this is just some Vivendi exec’s wet dream, and also because this goes against the grain of both history and the European Commission’s approach to stimulating a competitive Europe.
Right now there is a perfectly good acquisition for Vivendi to undertake and that’s taking DTH player Canal+ back from its Spanish owner Prisa, after a deal to merge this with Telefonica was stopped due to regulatory pressure. We should think that the two companies most likely to bid here are Vivendi and Sky, and perhaps that’s why they are making this kind of statement to the press.
Vivendi almost broke itself on constant acquisitions in the 2004 timeframe a management change at the top and a reversal of policy saw Universal Studios sold to GE’s NBC – a deal which was itself unraveled in 2011 when Comcast bought control of it and later took 100% of the asset.
Since then Vivendi doesn’t buy companies, it sells them, and although this gradual bid for lower debt and greater simplicity must eventually reverse itself, it’s a bit early to take on Sky. Meanwhile Rupert Murdoch at the head of 21st Century Fox, only just got through merging the three European Sky organizations, and never did this so that he could sell out – he could have sold them separately for more. He would sell for the right price, but we think Vivendi is unlikely to go as high as that price.
Another issue is how the European Commission wants to see content competition go in Europe. It wants to break down the idea of geographical licensing, so that companies like Sky and Canal+ can enter each other’s territories and create better competition for consumer pricing, and see them soak up local content owners in smaller countries to create larger businesses that can begin to take on US and Chinese operations globally.
In fact these two companies were used as examples of companies that should compete with one another, rather than merge, and here the opposite is being suggested. Also both of them are content businesses and both also offer DTH subscriptions – and that interdependence has caused each of them a lot of regulatory intervention – Sky in particular had to wholesale its Sky Sports channels at regulated prices, instead of keeping its sports assets entirely for its DTH audience.
Faultline concludes that neither side wants to merge, and that the resulting consolidation in content buyers would lead to objections from the European Commission – we’re not saying this is a not a deal that could be done, but there would definitely be conditions. Finally the consumer gains nothing, except concentrated content buying power at a time when these two favorites should be looking to establish new OTT paradigms.
If you add the fact that Sky and Vivendi’s OTT technology decisions to date have been very different, you see few synergies and lots of egos ready to prevent such a deal.
Reuters is the source of the rumor, saying that it had spoken to individuals at Vivendi, and noted that Sky is currently worth about $26 billion and the deal would require a significant premium, taking the price to around $42 billion.
Finally, News Corp and 21st Century Fox are controlled by Murdoch’s family and trust for the family, and he almost lost control of the business when John Malone bought $10 billion of the stock. Putting $42 billion of cash into the Murdoch businesses would make it look too much like a takeover target of its own, for Murdoch to go ahead, without him spending the cash immediately on another asset.