Market Tracker weekly bulletin – 27th September 2018

Market Tracker weekly bulletin – 27th September 2018

A round up of key developments in corporate transactions covered by Lexis®PSL Market Tracker this week.



Highlights from the battle for Sky plc by Comcast Corporation and Twenty-First Century Fox Inc.

On 26 September, Twenty-First Century Fox, Inc (Fox) announced an intention to lapse its offer after a two-year battle to acquire Sky plc (Sky).

Fox lost its battle to Comcast Corporation (Comcast) after the Takeover Panel (Panel) intervened and established an auction procedure whereby Comcast outbid Fox at a price of £17.28 per Sky share. Following the win, Comcast acquired more than 30% of Sky shares at a price of £17.28 per share. Comcast’s acquisition of more than 30% of interests or voting rights in Sky shares changed Comcast’s second recommended superior cash offer to a mandatory offer pursuant to Rule 9 of the Takeover Code (Code).

Fox also announced its intention to dispose of its 39% shareholding by either accepting Comcast’s offer or by selling its shares to Comcast.

Key developments:

15 December 2016: Fox made an offer for Sky for £11.7 billion at a share price of £10.75, excluding shares owned by Fox (39%). This firm offer followed Fox’s possible offer on 12 September 2016.

16 March 2017: The Secretary of State issued a European Intervention Notice, (Notice) requiring the Competition and Markets Authority (CMA) and Ofcom to investigate Fox’s proposed acquisition of Sky. The Notice specified that reports on two public interest grounds by Ofcom, and on jurisdiction by the CMA, must be submitted by 16 May 2017. The deadline was extended to 20 June 2017 due to the elections.

7 April 2017: Fox received clearance by the European Commission.

27 June 2017: Despite Fox receiving clearances by all competent competition authorities, the Secretary of State remained mindful to refer the acquisition to the CMA for an in-depth phase two investigation.

20 September 2017: The Secretary of State referred Fox’s proposed takeover of Sky to CMA on public interest grounds.

10 October 2017: The CMA published an Issues Statement setting out the proposed approach to assessing the impact of the merger.

14 December 2017: The Walt Disney Company (Disney) made an offer to acquire Fox. Because of the offer, the 39% Sky share owned by Fox would transfer to Disney upon completion of the sale of Fox to Disney.

23 January 2018:  The CMA published its provisional findings that Fox’s offer for Sky was not in the public interest.

27 February 2018: Fox’s offer for Sky was further challenged when Comcast Corporation (Comcast) made a possible competing offer for the fully diluted share capital of Sky for £22.1 billion. Comcast’s offer of £12.50 per Sky share represented a premium of 16% to Fox’s offer of £10.75 per share.

3 April 2018: Fox submitted revised remedies to the CMA including ring-fencing Sky news and the divestiture of Sky news.

12 April 2018: The Panel issued a ruling that following the completion of the acquisition by Disney of Fox, due to Fox’s stake of approximately 39% in Sky, Disney would be required to make a mandatory offer to Sky’s shareholders, pursuant to Note 8 on Rule 9.1 of the Takeover Code.

The ruling is an example of the so-called ‘chain principle’ under the Code. For further details see news analysis Panel Confirms that Disney will need to make mandatory offer following Fox acquisition (subscription required).

25 April 2018: Comcast made a firm offer of £22 billion for the fully diluted share capital of Sky at a price of £12.50 in cash for each Sky share.

19 June 2018: The Secretary of State announced an intention to accept the final undertakings by Fox and Disney, with a view to clearing Fox’s proposed acquisition of the remaining shares in Sky on media plurality grounds.

10 July 2018: Fox made an increased pre-conditional offer of £24.5 billion for Sky, with a consideration value of £14 per Sky share, sparking a bidding war between Fox and Comcast. The offer represented an increase of approximately 12% to the Comcast offer price of £12.50 for each Sky share. Under the chain principle Disney were required to offer £14 for each ordinary share in Sky. The acquisition remained subject to the approval of the Secretary of State.

11 July 2018: Comcast responded with an increased offer of £14.75 per Sky share. Comcast’s increased offer represented a premium of approximately 5.4% to Fox’s offer of £14 for each Sky share. Due to Comcast’s increased price, Sky withdrew its recommendation from Fox’s offer, terminating the cooperation agreement, and recommended Comcast’s offer to shareholders.

 12 July 2018: Fox received approval from Secretary of State for the acquisition of Sky.

20 August 2018: Sky published its defence document and urged shareholders not to take action in relation to Fox’s all cash offer.

29 August 2018: The Takeover Appeal Board confirmed the ruling of the Hearings Committee, reiterating that Disney would be obliged, under the chain principle, to make an offer at the price of £14 per Sky share within 28 days of completing its acquisition of Fox. However, Disney would not be obliged by the offer if by then Fox had acquired 100% of the shares in Sky or Comcast or any other third party had acquired more than 50% of such shares.

20 September 2018: The Panel intervened and established a rare auction procedure pursuant to Rule 32.5 of the Takeover Code, to provide an orderly framework for the resolution of the competitive bids for Sky by Fox and Comcast. The auction commenced on 21 September 2018 and ended during the evening of 22 September 2018.

22 September 2018: The auction concluded the bidding war with Comcast being the highest bidder.

Fox noted the increased cash offer for the fully diluted share capital of Sky by Comcast at a price of £17.28 per Sky share. Fox’s revised cash offer of £15.67 for each Sky share was notably less than Comcast’s offer. The independent committee of Sky recommended and urged shareholders to accept the Comcast offer.

For a full analysis of this, and other takeovers, please see our deal analysis tool in the key resources section (subscription required).

Latest developments

Corporate governance requirements for AIM companies

All AIM companies are now required to report against a recognised corporate governance code chosen by the board of directors. This provision takes effect from 28 September 2018, although since 30 March 2018 all new applicant AIM companies have been required to state which corporate governance code they intended to follow.

The AIM Rules state that an AIM company will need to disclose on its website how it complies with its chosen corporate governance code or, where it departs from its chosen corporate governance code, explain the reasons for doing so. This information should be reviewed annually, and the website should include the date it was last reviewed.

The LSE published guidance on this in July. It does not prescribe a list of recognised corporate governance codes as it believes that it is preferable for AIM companies to have a range of options to suit their specific stage of development, sector and size. Examples of existing codes are the QCA Corporate Governance Code and the UK Corporate Governance Code.

For more information, see our practice note on Corporate governance for an AIM company (subscription required).

Tackling the gender pay gap

In the wake of research by the Chartered Management Institute into the gender pay gap at FTSE 100 companies, which revealed that female CEOs earn less than half as much as their male counterparts, Sam Whitaker, counsel at Shearman & Sterling (London) LLP, examines the causes of GPGs, how companies are addressing the issue and the reliability of data on the subject. For more detail see Lexis®PSL Corporate (subscription required).

In focus: Brexit references in transaction documents

Next provides detailed ‘no deal’ analysis in interim results

On 26 September, Next plc announced their half-year results. The results included a section on ‘Brexit Preparation and Impact Analysis’, which discussed several direct risks, including import duties on goods arriving in the UK, and indirect risks such as delays at UK and EU ports.

The company foresees ‘no material cost increases or serious operational impediments’ should the Government not negotiate a deal with the EU. However, this is conditional upon the Government introducing procedures and infrastructure to ensure limited delays at ports or customs and adjusting tariff rates. Next did not discuss the implications of potential changes in consumer expenditure post-Brexit.

Although Next’s Brexit risk assessment contains the most comprehensive analysis of the implications of a ‘no-deal Brexit’ of any company thus far, Market Tracker has seen references to the possibility of a ‘no-deal Brexit’ in recent transaction documents. In August, Admiral Group released its half year results and stated that:

‘Brexit brings additional risks, particularly the possibility of a 'no deal' Brexit, to the Group including:

  • potential for market volatility, particularly in interest and exchange rates
  • the potential for the uncertainty or the emerging terms of exit regarding Brexit to trigger or exacerbate less favourable economic conditions in the UK and other countries in which Admiral operates (though it is worth noting that car insurance has tended to be resilient to economic downturns)
  • potential changes to or withdrawal of the right of UK financial services firms to trade in Europe without the need for locally regulated entities ('passporting')
  • potential changes to the rules relating to the free movement of people between the UK and EU member states.’ Results for the six months ended 30 June 2018 - Admiral Group plc

Aston Martin also accounted for the possibility that no terms are agreed in its August registration document:

‘The long-term effects of Brexit will depend on any agreements (or lack thereof) between the U.K. and the E.U. and, in particular, any arrangements for the U.K. to retain access to E.U. markets either during a transitional period or more permanently.’ Page 15, Registration document – Aston Martin Holdings (UK) Ltd

In the most recent annual reports reviewed by Lexis®PSL Market Tracker, we have seen a number of companies taking precautionary measures despite the lack of clarity over Brexit. Ashmore Group plc outlined its plans in its annual report:

‘The two-year period to determine the terms of the UK’s exit from the European Union ends in March 2019, however there remains substantial uncertainty regarding these terms and the implications for the financial services industry. In order to ensure continued access to EU-based institutional clients, subject to regulatory approval Ashmore is in the process of establishing an office in Ireland. Therefore, notwithstanding the uncertainty, the operational impact of Brexit is expected to be manageable and the financial impact immaterial.’ Page 17, Annual Report – Ashmore Group plc

Dechra Pharmaceuticals plc gave details on the measures they had taken in anticipation of a hard Brexit:

‘The Group has implemented a hard Brexit mitigation plan which will provide an EU based laboratory testing facility and staff for batch testing if this is required and the transfer of product registrations to an EU domiciled legal entity within the Group. This will entail an upfront investment of £0.2 million in capital and £1.0 million in one-off expenses. If EU batch testing and increased customs duties is required this will result in additional operating costs of approximately £0.8 million.’ Page 56, Annual Report - Dechra Pharmaceuticals plc

Our research also indicated that a large number of companies have appointed a Brexit Steering Committee, including Burberry Group plc, Renishaw plc and Kingfisher plc, to name a few.

Lexis®PSL Market Tracker will continue to monitor how companies are referring to Brexit in transaction documents. In particular, we will look at Brexit statements in company annual reports when we review the FTSE 350 in our upcoming AGM season 2018 trend report.


All statistical data in this bulletin is provided by Lexis®PSL Market Tracker, a unique service for corporate lawyers that allows users to access, analyse and compare the specific features of corporate transactions (subscription required).

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About the author:
Jenisa is Head of Market Insights for Lexis®PSL, with responsibility for the delivery of Market Tracker, a transaction analysis product that sits within Lexis®PSL Corporate. She has over 15 years of legal publishing experience, with a focus on researching and reporting on trends and developments in the corporate and commercial legal market. Previous roles include content developer for Lexis®PSL, Legal Podcaster at Informa, and Research Editor at Practical Law Company where she specialised in reporting on cross-border corporate and commercial developments from the firm’s New York office.