'The market is betting on a bidding war': The fight for Sky might come down to a rare sealed auction

Fox Disney and Comcast Sky 4x3

A sealed one-day auction between Comcast and Fox for Sky might commence Saturday.
These types of auctions are extremely rare with only two in the past decade.
Analysts predict that Comcast will win in a bidding war for Sky.

The battle for British broadcaster Sky may be in its final days. Comcast and 21st Century Fox, which have competing bids out for Sky, have until Friday to drop out of bidding before a larger clash of the media titans begins.

The bidding process may well end after a single-day auction starting on Saturday, Bloomberg reported, citing sources familiar with the matter.

The British Takeover Panel has a standard auction timeframe of five days, and bidding can be sealed or open. One-day sealed auctions are so rare there have been only two in the past decade, Morningstar analyst Allan Nichols told Business Insider.

"This is very rare in UK M&A," Alex DeGroote, an independent media analyst, told Business Insider. "And a suitably dramatic end to this saga."

A potential bidding war

Once an auction begins there are few potential outcomes, according to analysts.

Neither company could choose to increase their current bids for Sky. Comcast's current offer is £14.75 per share, valuing Sky at £26 billion ($34 billion), while Rupert Murdoch's 21st Century Fox bid is £14 a share.

Or, both companies could bid in an auction. "The market is betting on a bidding war," Nichols said. The shares for Sky have traded much higher than that of either offer, indicating that the market predicts a competitive bidding process that drives the purchase price higher.

Both analysts said they expect Comcast to win in an auction scenario.

"Comcast is overall positioned better to win," DeGroote said. "It has saved its firepower for this Sky auction, it has more balance sheet headroom and it can derive material operating synergies in a combination."

A final outcome is that shareholders could reject any offer on the table. They have until October 6 to do so. If they reject the offers any future offers would have to be on hold for a period of six months.

The battle for Sky is linked to an earlier fight between Disney and Comcast for some 21st Century Fox assets. In July, Comcast dropped out of that bidding, allowing Disney to win Murdoch's entertainment assets plus the 39% of Sky Fox already owned. If Fox wins out in an auction, it will control Sky. If Comcast wins, it will own the 61% not owned by Fox.

Sky is an attractive asset to both Comcast and Disney as they work to expand their international footprints. The British pay-TV business serves 23 million customers, mostly direct-broadcast-satellite subscribers, in the UK, Ireland, Germany, Austria, Italy, Spain, and Switzerland.

And it has a strong content portfolio with exclusive rights through 2020 to run HBO shows— like Game of Thrones and Westworld — across Europe, and has the majority of Premier League football TV rights and exclusive rights to the German Bundesliga.

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