The Murdoch family has had a tough week. Rupert and sons parted company with the star of their profitable Fox News channel after sexual harassment allegations against him. The Murdochs can take some comfort in Britain, though, where their well-timed bid to buy the 61 percent of Sky Plc they don't already own remains on track.
Still, like all deals with long waits before closing, things can be derailed. There are about eight months to go before expected completion. British regulators will issue their evaluation of the bid by May 16. They'll examine among other criteria whether 21st Century Fox Inc., and by extension the Murdoch family, pass a so-called "fit and proper" test to hold a broadcast license.
Theresa May's government will have to juggle this political football just weeks before a general election. It's difficult to handicap given the rareness of such reviews and the Murdochs' complicated history in the U.K., where their last tilt at Sky foundered amid a phone-hacking scandal at a British tabloid.
If Sky's results worsen or improve in the next few quarters, the Murdochs risk getting squeezed either way. If they deteriorate, 21st Century Fox shareholders might revolt. Many don't love the idea of the U.S. company doubling down on a mature European pay-TV business. If things get better, Sky investors will have a case to argue for a better price than the 1,075 pence per share signed off by their board. I argued at the time that the bid looked a little stingy, and was helped by the pound's devaluation.
So far, Sky's results have been usefully (to the Murdochs, at least) mediocre. U.K. revenue growth slowed to 2.6 percent in the fiscal third quarter compared with a year earlier, well below the 4-7 percent rises of recent years. Customer churn remains high. Profit was dented by the phasing in of more expensive rights for English Premier League soccer. These problems were foreshadowed by a weak share price last year — giving Fox the chance to pounce.
Fox still seems to be picking Sky up during an earnings trough caused by soccer rights inflation. It remains a well-run company in a reasonably robust sector. In the third quarter, Sky added more customers than expected in Germany, with 73,000 new arrivals. Group revenue met expectations, and the 5 percent sales growth in the first nine months of the financial year wasn't bad. Cost cuts are helping offset the 630 million pounds ($807 million) earmarked for soccer this year.
Yet Sky shares have never traded above the offer price since talks with Fox were disclosed. Bill O'Reilly's banishment from Fox did nothing to close the discount, suggesting the market didn't think it would have any bearing on the fit and proper test.
So far there's been nothing to tempt an activist Sky shareholder arguing Fox should pay more, or one to create a revolt at Fox itself. That may well change if the regulatory hurdles are cleared. In the meantime, the Murdochs will happily take a couple more quarters like the one just gone at Sky. Middle of the road suits them best in this game.
Chris Hughes assisted with this column.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.