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Auctioning the Sky

This article talks about the auction that will be taking place this Saturday over the huge takeover sale for Sky PLC between Comcast Corp and 21st Century Fox Inc. After a 21-month long sale process, this auction will result in the ultimate buying of the London-based Sky which right now runs a market value of about $35 billion. While Fox already owns 39% of Sky, they will be bidding against Comcast this coming Saturday for the remaining 61%. A separate deal between Walt Disney Co and Fox Inc. has thrown Disney into the mix as well, as they previously agreed to buy a large share of Fox for $71 billion, a share that included Fox’s Sky stake.

Fox began the negotiations in December of 2016, when they offered to buy the rest of Sky that they did not already have. When they faced unforeseeable delays, Comcast took the opportunity to jump in the bidding war with a surprisingly high offer that surpassed what Fox had previously offered. Since then negotiations has escalated, leading to its culmination in this coming British regulated auction on Saturday. The auction on Saturday will consist of three rounds: during the first round only Fox can bid, during the second round Comcast can counterbid, and during the third round both contenders can submit sealed-bid offers.

This auction is an example of one of the auction strategies we discussed in class. As the article mentions, the first two rounds of the auction really don’t matter and only serve strategic purposes in the negotiation process. The most important round is the third one which determines the winner. This last round is an example of a first-price sealed bid auction since the winner will pay what the value of their bid should it be the highest. This means that the dominant strategy for both Comcast and Fox would be to bid their highest possible true value, or a little below that in order to maximize the payoff, for Sky when it is time for the sealed bid round.

As we discussed in class, the issue with the dominant bidding strategy for first-price sealed bid auctions is that if you do not bid low enough you don’t maximize your payoff, while if you bid too low you may lose the bid entirely. For this reason, finding the optimal tradeoff is very risky and can lead to very close auctions. This is evident through the example given by the auction between Tata Steel and CSN, where it came down to a difference of .05 pounds. Comcast and Fox have been almost as close in their bids and counter-bids so it will be very interesting to see how Saturday’s auction will unfold.


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