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Sky's the limit for Fox investors


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Sky's the limit for Fox investors

The consolidation of legacy media companies continues, this time with a global bent.

A bullish week on the market, driven largely by macroeconomic speculation, ended with a bang as 21st Century Fox Inc. said it is working on a deal to buy the remaining portion of European pay TV giant Sky plc that it does not already own.

Fox said Dec. 9 that it will pay £10.75 per share for Sky, a 40% premium to the Dec. 6 closing price of Sky. That pencils out to $14 billion, according to The Wall Street Journal. Fox already owns more than 39% of Sky.

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The deal comes at a time when the U.K. government is interested in bullish market news, as investors have reacted negatively to its plan to exit the European Union. If that is the case, the deal may have a better chance of passing regulatory scrutiny.

While investors were still digesting the implications, Stifel analyst Benjamin Mogil penned a bullish note on Fox.

"The deal would not only be an accretive use of the current cash holdings of Fox, but more importantly continue to diversify the company away from US cable advertising. While the larger MVPD cord cutting/shaving issues are at play for the Sky markets, MVPD service is not as penetrated in those markets, somewhat more insulating the company," Mogil said in the note.

Jefferies analyst John Janedis also weighed in, but more hesitantly. In his Dec. 9 note, he said that while it is unclear how much investors want Fox to expand internationally, he concluded that the deal "would allow the company to be more competitive in our view, taking away capital constraints from the asset."

The news goosed Sky's stock, which jumped up as much as 27% according to The Journal, but U.S. investors moderated their bullishness. They jumped into Fox after the news broke, sending shares upward, then pulled back with just as much momentum. Fox shares settled almost flat for the last two trading days of the week.

Fox was not the only name tracking on M&A speculation during the week ended Dec. 9, but even with deal chatter orbiting some companies, most of the media and communications industry traded on secular bullishness that seemed to be associated with the incoming U.S. presidential administration.

Looking at M&A, Pandora Media Inc. shares enjoyed a bump after reported Dec. 2 that the music-streaming company was considering a merger, particularly with Sirius XM Holdings Inc. The rumors come after Pandora in July brought on Centerview Partners as an adviser on strategic options.

Pandora shares launched 20.3% between Dec. 1 and Dec. 9.

FairPoint Communications Inc. saw its market cap expand on much firmer ground as Consolidated Communications Holdings Inc. announced Dec. 5 that it would purchase FairPoint for $1.5 billion in an all-stock transaction, representing a 17.3% premium to the 30-day trading average as of Dec. 2.

FairPoint also got a boost in its credit outlook from the deal.

FairPoint shares catapulted 13.7%, though Consolidated Communications dipped 3.2%, for the trading days between Dec. 1 and Dec. 9.

Outside of transactions, stocks largely moved on the business outlook, with an eye to real estate mogul Donald Trump's taking the office of president of the United States on Jan. 20. Already the president-elect seems to be padding his Cabinet with members of the business community, and the companies associated with those appointments are seeing market gains.

For example, Trump's administration announced Dec. 7 that he plans to nominate co-founder and former CEO of World Wrestling Entertainment Inc. Linda McMahon as the Head of Small Business Administration, and WWE’s stock subsequently climbed upward to close with an 10.8% gain for the five trading days ended Dec. 9.

Walt Disney Co. also caught some attention after Chairman and CEO Bob Iger was brought onto the president-elect's strategic and policy forum. The upswing came as investors continued to question the strength of ESPN Cable TV Co., Disney’s TV sports brand that has seen subscriber declines.

However, other tailwinds are supporting the stock. The company's film unit is enjoying some positive attention since new animated title "Moana" has been a hit, and the Dec. 16 release of "Rogue One: A Star Wars Story" is expected to break box offices with an opening around $130 million.

Disney shares added 6.1% for the week ended Dec. 9.

SeaWorld Entertainment Inc. came up for air during the week as well, making headlines on a restructuring that would see 320 jobs slashed by the end of fiscal 2016. The layoffs will occur across the company’s 12 theme parks, as part of a plan to reduce costs by about $65 million, with a targeted $40 million in net savings by the end of 2018.

Investors liked the move, bidding SeaWorld shares up by 5.9% for the week.

Many other companies added large portions to their market caps during the week, as U.S. stocks tracked toward the best weekly performance since the presidential election, according to The Journal.

For media and communications companies, the hope of deregulation buoyed broadcast television names, with the SNL Kagan TV Station Index climbing 6.2% for the five trading days. The SNL Kagan Publishing Index also notched up in the black on the same principle. Each of SNL Kagan's broader indexes for new media, communications and media and entertainment also posted substantial gains.

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