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You can find the current article at its original source at http://www.theguardian.com/business/nils-pratley-on-finance/2018/jul/12/sky-independent-directors-should-learn-valuation-is-art-not-science-rupert-murdoch-comcast
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| Sky's independent directors should learn valuation is art, not science | Sky's independent directors should learn valuation is art, not science |
| (4 months later) | |
| Can it be only 19 months since outside shareholders in Sky were supposed to be grateful for a bid from the Murdochs at £10.75 a share? It is. In December 2016, the independent directors, led by Martin Gilbert, declared they had given “full consideration to the fundamental value and prospects” for Sky and, while they remained supremely confident in those prospects, £10.75 in cash was too good to miss. | Can it be only 19 months since outside shareholders in Sky were supposed to be grateful for a bid from the Murdochs at £10.75 a share? It is. In December 2016, the independent directors, led by Martin Gilbert, declared they had given “full consideration to the fundamental value and prospects” for Sky and, while they remained supremely confident in those prospects, £10.75 in cash was too good to miss. |
| Offers at almost 40% above the previous week’s share price don’t come along often, ran their argument. And, hey, with 21st Century Fox sitting on a 39% stake, Rupert could have cut up rough by offering a 20% premium in an attempt to crawl to a position of majority control. | Offers at almost 40% above the previous week’s share price don’t come along often, ran their argument. And, hey, with 21st Century Fox sitting on a 39% stake, Rupert could have cut up rough by offering a 20% premium in an attempt to crawl to a position of majority control. |
| As argued here at the time, Gilbert & co’s position looked too feeble. Sky’s shares had traded at £11 in April 2016 and had only fallen to 769p because, at the time, the market was in a panic about Netflix and even thought BT represented a serious threat on the football front. Brexit blues may also have infected the mood. Sky executives, by contrast, were bullish. In July they had raised the dividend for the 12th year in a row and they spoke of big opportunities ahead as the freshly absorbed Sky Italia and Sky Deutschland were brought up to the standard of the UK original. Even while the independent directors were pondering, Polo Tang at UBS, one of the City’s sharpest media watchers, reckoned a fair price for Sky was £13.70. | As argued here at the time, Gilbert & co’s position looked too feeble. Sky’s shares had traded at £11 in April 2016 and had only fallen to 769p because, at the time, the market was in a panic about Netflix and even thought BT represented a serious threat on the football front. Brexit blues may also have infected the mood. Sky executives, by contrast, were bullish. In July they had raised the dividend for the 12th year in a row and they spoke of big opportunities ahead as the freshly absorbed Sky Italia and Sky Deutschland were brought up to the standard of the UK original. Even while the independent directors were pondering, Polo Tang at UBS, one of the City’s sharpest media watchers, reckoned a fair price for Sky was £13.70. |
| Now, with the political and regulatory wrangling complete, the real bidding for Sky has started and the best offer has shot to £14.75, Comcast’s response on Wednesday evening to Fox’s morning pitch at £14. This hotly contested auction – who knows? – may bring more excitement. | Now, with the political and regulatory wrangling complete, the real bidding for Sky has started and the best offer has shot to £14.75, Comcast’s response on Wednesday evening to Fox’s morning pitch at £14. This hotly contested auction – who knows? – may bring more excitement. |
| One could try to defend the Sky independents’ capitulation in 2016 on the grounds that a lot has happened since. The company netted the next set of Premier League rights on decent terms, which wasn’t guaranteed. The passage of time, with Sky ticking along nicely, has also added to the company’s value. The board was also dealing with a single bidder in 2016 since Comcast hadn’t declared its interest. And, at a push, one could say that Sky’s scarcity value, as one of the few TV companies with a substantial pan-European presence, has increased as US media titans follow Netflix and look global. | One could try to defend the Sky independents’ capitulation in 2016 on the grounds that a lot has happened since. The company netted the next set of Premier League rights on decent terms, which wasn’t guaranteed. The passage of time, with Sky ticking along nicely, has also added to the company’s value. The board was also dealing with a single bidder in 2016 since Comcast hadn’t declared its interest. And, at a push, one could say that Sky’s scarcity value, as one of the few TV companies with a substantial pan-European presence, has increased as US media titans follow Netflix and look global. |
| All the same, Gilbert and his colleagues should be embarrassed. Valuation is art, not science but the difference between £10.75 and £14.75 is enormous. In hard cash terms for 100% of Sky, it’s about £7bn, which is serious money. Angry Sky shareholders said in December 2016 that their board had rolled over too cheaply. They were right. | All the same, Gilbert and his colleagues should be embarrassed. Valuation is art, not science but the difference between £10.75 and £14.75 is enormous. In hard cash terms for 100% of Sky, it’s about £7bn, which is serious money. Angry Sky shareholders said in December 2016 that their board had rolled over too cheaply. They were right. |
| Unilever shareholders rightly concerned | Unilever shareholders rightly concerned |
| Finally a few Unilever shareholders are stirring themselves to protest about the company’s plan to unwind its ancient Anglo-Dutch corporate structure and establish its sole headquarters and primary market listing in the Netherlands, a move that would almost certainly mean ejection from the FTSE 100 index. | Finally a few Unilever shareholders are stirring themselves to protest about the company’s plan to unwind its ancient Anglo-Dutch corporate structure and establish its sole headquarters and primary market listing in the Netherlands, a move that would almost certainly mean ejection from the FTSE 100 index. |
| Unilever is pursuing its big switch in the name of “simplification”, which is understandable from its point of view: the current dual-headed arrangement could indeed get in the way of doing equity-based deals. The trouble is, life could become more complicated for those funds that have strict UK investment mandates. | Unilever is pursuing its big switch in the name of “simplification”, which is understandable from its point of view: the current dual-headed arrangement could indeed get in the way of doing equity-based deals. The trouble is, life could become more complicated for those funds that have strict UK investment mandates. |
| For them, the fact that Unilever will still have a listing in London is irrelevant. It’s the presence in the indices that matters. Nick Train of fund manager Lindsell Train, which manages a 2.5% stake in Unilever, told the FT he is worried about the “likelihood that we will become forced sellers of the shares for some of our clients at a time and a price not of our choosing.”. | For them, the fact that Unilever will still have a listing in London is irrelevant. It’s the presence in the indices that matters. Nick Train of fund manager Lindsell Train, which manages a 2.5% stake in Unilever, told the FT he is worried about the “likelihood that we will become forced sellers of the shares for some of our clients at a time and a price not of our choosing.”. |
| He is surely not alone in that fear, since UK tracker funds, in theory, are most exposed to the risk of being forced to dump a major stock at a temporarily depressed price. Yet Columbia Threadneedle is the only other major fund manager to speak up. Others need to realise they have some clout here. Unilever’s board requires a 75% majority in the current UK class of shares to win the day in the autumn vote, which is a tall order if the refuseniks organise themselves. | He is surely not alone in that fear, since UK tracker funds, in theory, are most exposed to the risk of being forced to dump a major stock at a temporarily depressed price. Yet Columbia Threadneedle is the only other major fund manager to speak up. Others need to realise they have some clout here. Unilever’s board requires a 75% majority in the current UK class of shares to win the day in the autumn vote, which is a tall order if the refuseniks organise themselves. |
| Train urges those UK investors to “give serious consideration over the summer as to whether this proposal is in their interest”. So they should. Whatever Unilever says about “engaging” with UK shareholders, it seems to have listened to the worries and decided to ignore them. | Train urges those UK investors to “give serious consideration over the summer as to whether this proposal is in their interest”. So they should. Whatever Unilever says about “engaging” with UK shareholders, it seems to have listened to the worries and decided to ignore them. |
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