A cluster of powerful hedge funds stand to make a profit of more than £1billion from the sale of FTSE 100-listed broadcasting giant Sky after a bidding war sent the shares soaring.
Last night, a high-stakes showdown saw Comcast emerge as the winner of the battle for Sky with an offer of £17.28 per share, triggering a huge windfall for investors. Sky shares were trading at as little as 925p just one year ago.
Baupost, Elliott and Odey Asset Management have built a combined stake of almost 10 per cent in Sky, according to stock market disclosures. Sources said the number of shares held by hedge funds could be as much as 20 per cent because some will have been controlled secretively through obscure financial instruments and contracts.
Windfall: Crispin Odey could have made a profit of £100million
Some are understood to have used structures that allowed them to sidestep the stamp duty and capital gains tax which investors normally pay when buying ordinary shares.
Baupost, founded by Harvard professor William Poorvu, owns 4.75 per cent (around £1.4billion) of Sky. It has built its stake since 21st Century Fox first revealed its plan to buy the remainder of Sky for 1075p a share in December 2016.
Based in Boston in the US, Baupost is one of the world’s largest hedge funds with $32billion under management. It is run by billionaire Seth Klarman.
Bloomberg data shows Baupost began building its Sky stake in September last year, paying an average of 991.8p a share for shares in the broadcaster. That means it could stand to make as much as £600million profit.
Elliott, another American hedge fund known for its activist campaigns challenging management strategy has built up a 4.3 per cent stake in Sky. Its profit could be more than £400million. It is run by billionaire Paul Singer, a Republican donor, and has a track record for getting into rows with management teams and, occasionally, governments to boost its investments.
The firm, which manages around $30billion, famously pursued Argentina over its debts for more than a decade, and even won a court order to detain an Argentine navy vessel docked in Ghana.
US broadcaster Comcast has won an auction against 21st Century Fox to take over Sky
Other hedge funds that will make vast sums from the sale of Sky include Odey Asset Management. Odey is run by Briton Crispin Odey, who pocketed massive returns in the run-up to the financial crisis by betting that bank shares would collapse.
Odey, who was once married to Rupert Murdoch’s daughter Prudence, owns about 0.6 per cent of Sky. Unlike his American rivals, Odey originally purchased a stake in Sky in 2005. Bloomberg says he paid an average of 681p, so he could have made £100million.
Last June he said: ‘Debt is so easy to serve and so cheap that they could easily be paying 1800p for Sky. If your free cashflow looks like it’s going to come through at £2.5billion, which it should do within a year, what are you willing to pay for that? Well, you’re willing to pay £50billion… or around 2600p a share.’
Investment bankers, lawyers and financial PR officers working for Comcast, Sky and 21st Century Fox are all set for a mega payday of £580million between them.
A potential sale of Sky began in late 2016 when Rupert Murdoch’s 21st Century Fox launched an offer for the broadcaster
Yesterday, Comcast and 21st Century Fox, which has teamed up with Walt Disney Company, battled it out for Sky in a sealed bids auction process managed by the Takeover Panel, the City’s regulator for mergers and acquisitions.
Sky directors last night recommended the £30billion bid to shareholders. Comcast announced immediately after the auction closed that it would launch a raid on Sky shares to help clinch the deal. The sealed bids process was the culmination of a lengthy tussle between Comcast and Disney, led by US Presidential candidate Bob Iger, for Murdoch’s 21st Century Fox over the past 12 months.
The main battle was won by Disney, which agreed to pay $71billion (£55billion) for the majority of the 21st Century Fox assets including film and TV studios. As part of that deal, Disney is in line to receive Fox’s 39 per cent stake in Sky.
Comcast also launched a separate offer for Sky while attempting to buy 21st Century Fox.
A potential sale of Sky began in late 2016 when Murdoch’s 21st Century Fox launched an offer for the broadcaster. Back then, 21st Century Fox offered 1075p a share but Comcast’s previous bid of 1475p had been recommended by the broadcaster’s board ahead of yesterday’s auction.
None of the parties involved would comment.