A $39 Billion Auction
https://www.cnbc.com/2018/09/22/sky-comcast-fox-36-billion-takeover-auction.html
In today’s environment, the media industry has been saturated in content. With the rise of technology, humans are more interconnected than ever; with that connection comes the influx of content and information. Every moment of every day, people are inundated with advertisements, TV shows, news, and social media. Companies fight for the chance to divert potential customers’ attention for just a second. Among those companies include media companies: US cable companies like Comcast and film or media like Fox.
In recent weeks, Comcast and Fox have been embroiled in a battle over the rights to acquire Sky, a British broadcaster. For Fox, which already owned 39% of the company, it meant penetrating the European market as a primarily American television stations. Similarly, Comcast wanted to acquire the company to diversify its assets. With the rise of streaming platforms like Hulu and Netflix, cable companies have been focused on diversifying their portfolio to fend off these competitors eating up much of their market share.
The auction took place as a single-price auction: the highest bidder paid the price that it bid, assuming the shareholders of Sky agree to the price valuation. What was unusual, however, was that there were three rounds of bidding – a rare occurrence when a company as large as Sky is involved. With each round, both sides bid higher and higher to demonstrate their interests in acquiring the company. The end result was Comcast winning the bid with a $39 billion valuation at £17.28 per share as opposed to Fox’s £15.67 per share.
In class, we learned about the dominant strategies when participating in auctions. For first price auctions, it is more difficult to determine the optimal price to bid for, especially when there are three rounds to the auction. Obviously it is a better strategy to bid lower than true value, but it is also difficult when billions of dollars are involved and there are various outside factors that need to be considered when adjusting and finalizing bid prices. However, it is interesting to see real world uses of auctions, where the techniques learned in class can be applied to situations where billions are at stake.