Post offer undertakings - Fifth Anniversary Report

Sky Limited

17 October 2023

 

17 October 2023

Sky Limited

Post‑offer undertakings in relation to the acquisition of Sky plc ("Sky") by Comcast Corporation ("Comcast") ‑ report in compliance with Rule 19.5(h) of the City Code

BACKGROUND

In relation to the acquisition of Sky by Comcast on 9 October 2018 (the "Effective Date"), each of Comcast and Sky has given post‑offer undertakings under Rule 19.5 of the City Code (each a "Post‑Offer Undertaking" and together the "Post‑Offer Undertakings"), full details of which were set out in Part A of an RIS announcement dated 8 May 2018 (the "POU Announcement"), relevant extracts from which are attached to this report as Appendix A.

Pursuant to Rule 19.5(e) of the City Code, each of Comcast and Sky must comply with the terms of the Post‑Offer Undertakings it has given for the periods of time specified in the Post‑Offer Undertakings and must complete any course of action committed to by the dates specified in the Post‑Offer Undertakings.

This report is provided in accordance with Rule 19.5(h) of the City Code, pursuant to which Comcast and Sky must submit written reports to the Panel at such intervals (of not more than 12 months) as the Panel may require in relation to its compliance with the Post‑Offer Undertakings it has given.

Unless otherwise defined in this report, terms used in this report shall have the same meanings given to them in the POU Announcement.

SUBMISSION

Sky Group's UK Headquarters at Osterley

1.       Throughout the period from the Effective Date to 9 October 2023, the Sky Group maintained its UK headquarters in Osterley, Greater London, TW7 by Sky occupying one or more buildings in Osterley, one of which buildings was publicly designated as the Sky Group's UK headquarters and was the registered office of Sky.

Ownership of Newspapers in the UK

2.       Throughout the period from the Effective Date to 9 October 2023, neither Comcast nor Sky nor any of their respective subsidiaries or subsidiary undertakings directly or indirectly, whether alone or with or through any third party, held or acquired (or entered into an agreement, or triggered any obligation, to so hold or acquire) a majority of the shares or voting rights in, or the right to appoint or remove a majority of the board of directors of, any undertaking which carries or carried on a business of publishing any daily, Sunday or local UK Newspaper.

This report is submitted to the Panel in accordance with Rule 19.5(h) of the City Code and has been approved by the boards of directors of Sky and Comcast.

APPENDIX A -POST OFFER UNDERTAKINGS

Comcast and Sky make the following post-offer undertakings pursuant to Rule 19.5 of the City Code, subject to the qualification and condition set out below (each of the post-offer undertakings in paragraphs 1.1(a), 1.1(b), 1.1(c), 1.2, 1.3, 2, 3 and 4 being a "Post-Offer Undertaking" and, together, the "Post-Offer Undertakings").

1          Sky-Branded News Service

1.1       Comcast undertakes to procure, and Sky undertakes, that:

(a)        throughout the period of five years from the Effective Date or, if longer, from the Effective Date to the date on which the Post-Offer Undertakings at paragraphs 1.1(b), 1.1(c), 1.2 and 1.3 have been satisfied in full, a member of the Sky Group (alone or with other members of the Sky Group) shall:

(i)         have ownership of, or the right to use, all assets and rights (including licences) necessary to carry on a Sky-Branded News Service; and

(ii)         continue to carry on a Sky-Branded News Service;

(b)        subject to the Post-Offer Undertaking at paragraph 1.1(c), the total Sky News Expenditure spent by members of the Sky Group:

(i)         during the period from the Effective Date to 30 June 2019 will be at least an amount which, when added to the total Sky News Expenditure during any period from 1 July 2018 to the Effective Date, is equal to the Initial Amount, as increased (for the previous 12 months only) by CPIH  as published in July 2018 (or, if not available in July 2018, the next month in which it is published) (the Initial Amount so increased being the "First Year Amount");

(ii)         during the period from 1 July 2019 to 30 June 2020 will be at least an amount equal to the First Year Amount, as increased by CPIH as published in July 2019 (or, if not available in July 2019, the next month in which it is published) (such increased amount being the "Second Year Amount");

(iii)        during the period from 1 July 2020 to 30 June 2021 will be at least an amount equal to the Second Year Amount, as increased by CPIH as published in July 2020 (or, if not available in July 2020, the next month in which it is published) (such increased amount being the "Third Year Amount");

(iv)        during the period from 1 July 2021 to 30 June 2022 will be at least an amount equal to the Third Year Amount, as increased by CPIH as published in July 2021 (or, if not available in July 2021, the next month in which it is published) (such increased amount being the "Fourth Year Amount"); and

(v)        during the period from 1 July 2022 to 30 June 2023 will be at least an amount equal to the Fourth Year Amount, as increased by CPIH as published in July 2022 (or, if not available in July 2022, the next month in which it is published) (such increased amount being the "Final Year Amount"),

each of the First Year Amount, the Second Year Amount, the Third Year Amount, the Fourth Year Amount and the Final Year Amount being the "Applicable Base Expenditure" in respect of the relevant period; and

(c)        in the event that the total Sky News Expenditure spent by members of the Sky Group during the period from 1 July 2018 to 30 June 2019 or any period set out in any of paragraphs 1.1(b)(ii) to (v) (each such period being an "Expenditure Period") is less than the Applicable Base Expenditure for that period, the amount of that shortfall ("Shortfall") shall be spent by members of the Sky Group as Sky News Expenditure within 6 months of the end of that period (each such period being a "Shortfall Period") and provided that the amount of any Sky News Expenditure spent pursuant to this Post-Offer Undertaking shall not be considered as Sky News Expenditure spent for the purposes of the Post-Offer Undertaking at paragraph 1.1(b) during the Expenditure Period following that in which the Shortfall arose.

1.2       Comcast undertakes to procure, and Sky undertakes, that throughout each Expenditure Period and from 1 July 2023 to 31 December 2023, the Sky Group shall maintain financial records containing and recording all items of Sky News Expenditure and the total Sky News Expenditure in each such period. 

1.3       Comcast undertakes that it shall make available to Sky such funding as may be necessary to enable Sky to satisfy the Post-Offer Undertaking at paragraph 1.1(c) irrespective of Comcast's level (if any) of ownership of or control over Sky.

(Paragraphs 1.1(a), 1.1(b), 1.1(c), 1.2 and 1.3 together being the "Sky News Post-Offer Undertakings").

1.4       For the purposes of the Sky News Post-Offer Undertakings:

(a)         "CPIH" means the annual consumer prices index rate, including a measure of owner occupiers' housing costs, as published by the Office for National Statistics (or any successor);

(b)        "Indirect Costs Cap" means in respect of an Expenditure Period (and including any related Shortfall Period) an amount equal to 30 per cent. of the Applicable Base Expenditure for that Expenditure Period;

(c)         "Initial Amount" means the amount of the total Sky News Expenditure for the period from 1 July 2016 to 30 June 2017 (see Note 1);

(d)        "Relevant Costs" means:

(i) the direct costs relating to:

(A) headcount: the cost of all permanent staff and freelancers working directly on the provision of a Sky-Branded News Service (including presenters, reporters, producers, editors and cameramen);

(B) coverage/newsgathering: daily newsgathering costs (e.g. travel, accommodation and feeds), large story spend (e.g. referenda, elections), newsgathering contract costs (e.g. The Associated Press) and satellite truck maintenance and operational costs;

(C) production, studio and archive: all production and studio costs (headcount, equipment and storage) and operational spend, news archive costs, and foreign bureau rent and office costs;

(D) Sky News International: transponder, marketing, and headcount costs for Sky News International;

(E) digital: headcount costs for digital team and associated contracts;

(F) radio: headcount costs for radio journalists and costs of associated radio contracts; and

(G) channel management: headcount costs for direct channel management of a Sky-Branded News Service including the Head of a Sky-Branded News Service; and

(ii) subject to (iii) below, the indirect costs relating to:

(A) satellite and digital terrestrial television (Freeview) and other capacity: an allocation to a Sky-Branded News Service of: (i) total satellite capacity costs; (ii) total Freeview capacity costs; and (iii) related headcount costs;

(B) music licence fees: an allocation to a Sky-Branded News Service of total music licence costs;

(C) creative services: headcount costs of the graphics team working for, and an allocation of creative agency and promotional costs to, a Sky-Branded News Service;

(D) corporate overhead and functional information technology and human resources: an allocation to a Sky-Branded News Service of: (i) corporate headcount support comprising headcount from Sky's legal, finance, human resources and public affairs departments; and (ii) information technology and human resources support costs (e.g. laptop support); and

(E) capital expenditure depreciations: capital expenditure depreciation on the capital assets directly employed for the purposes of the provision of a Sky-Branded News Service, comprising news gathering and operational equipment (e.g. cameras and SIS trucks),

but, in each case, excluding indirect costs relating to property and facilities shared with other businesses (not being a Sky-Branded News Service) of the Sky Group (including rates and rent for buildings from which a Sky-Branded News Service operates), marketing (including advertising), equipment support and broadcast operations (i.e. the headcount and equipment costs relating to the ingest and playout of audiovisual content).

            (iii) If and to the extent that indirect costs in any Expenditure Period (including any related Shortfall Period) exceeds the Indirect Costs Cap for that period, the total amount of any indirect costs for that Expenditure Period (including any related Shortfall Period) shall be deemed to be equal to the Indirect Costs Cap.

(e)         "Sky-Branded News Service" means a 24-hour news and current affairs service comprising television news channels (and which may also include related digital and radio services) that is distributed to an audience in the United Kingdom (although it may also be received internationally) that:

(i)         is made available under a brand which incorporates the word "Sky" (and may include the brands "Sky News" and "Sky News HD"); and

(ii)         may be made available on a free to air or a charged (including a subscription) basis; but

(iii)        does not include Sky Sports News.

(f)         "Sky News Expenditure" means expenditure by members of the Sky Group (excluding any expenditure between such members) on Relevant Costs incurred on a basis which is consistent with Sky's previous accounting policies and methodology for the purposes of carrying on a Sky-Branded News Service;

(g)        "Sky News International" means a version or versions of a Sky-Branded News Service distributed to an audience outside of the UK; and

(h)         "Sky Sports News" means a news service with a majority of its content focussed on sports related news.

1.5        For the purposes of the Sky News Post-Offer Undertakings, a certification by the Supervisor as to any of the following:

(a)        whether or not expenditure constitutes:

(i)         Sky News Expenditure;

(ii)         expenditure by members of the Sky Group; and

(iii)        expenditure during a period; and

(b)        what amount constitutes:

(i)         the Initial Amount; and

(ii)         Shortfall,

shall be final and conclusive and binding on Comcast and Sky.

Note 1:  The Initial Amount is commercially sensitive and a figure is therefore not included in this announcement.  It will, however, be certified by the Supervisor.

2          Sky Group's UK Headquarters at Osterley

Throughout the period of five years from the Effective Date, Comcast undertakes to procure, and Sky undertakes, that the Sky Group shall maintain its UK headquarters in Osterley, Greater London, TW7 by Sky occupying one or more buildings in Osterley, one of which buildings shall be publicly designated as the Sky Group's UK headquarters and be the registered office of Sky.

3          Ownership of Newspapers in the UK

Throughout the period of five years from the Effective Date:

(a)        Comcast undertakes that neither Comcast nor any of its subsidiaries or subsidiary undertakings shall; and

(b)        Comcast undertakes to procure, and Sky undertakes, that neither Sky nor any of Sky's subsidiaries or subsidiary undertakings shall,

in each case, directly or indirectly, whether alone or with or through any third party, hold or acquire (or enter into any agreement, or trigger any obligation, to so hold or acquire) a majority of the shares or voting rights in, or the right to appoint or remove a majority of the board of directors of, any undertaking which carries on a business of publishing any daily, Sunday or local UK Newspaper (the "UK Newspaper Post-Offer Undertaking").

For the purposes of the UK Newspaper Post-Offer Undertaking, "UK Newspaper" means a printed newspaper publication, the majority of the content (excluding advertisements) of which consists of news reports related to public and current affairs and other journalistic content, published at intervals of not more than 7 days and distributed wholly or primarily either nationally throughout the UK or in a specific local area of the UK (and which may also be made available in digital form) but excluding a publication which is made available only in digital form.

4          Sky News Board

Each of Comcast and Sky undertakes to procure that, no later than three months after the Effective Date, the Sky Group shall establish an "editorial board" for the Sky-Branded News Service by Sky UK Limited (or, alternatively, any other member of the Sky Group that, as at the date on which the "editorial board" is so established, holds the relevant licence(s) for a Sky-Branded News Service):

(a)        designating and appointing no fewer than three individuals to an "editorial board", such designation and appointment to be considered satisfied when announced via a RIS; and

(b)        publishing the terms of reference of that "editorial board" on a website.

Qualification and Condition

Subject to consulting the Panel in advance and obtaining the Panel's consent to rely on such qualification or condition pursuant to Rule 19.5(f) of the City Code, a Post-Offer Undertaking will no longer apply if and to the extent that the Panel determines that Comcast or Sky (as the case may be) is unable to comply with that Post-Offer Undertaking as a result of an event, act or circumstance beyond the control of Comcast or Sky (as the case may be).

Definitions and Interpretation

The following definitions and interpretations also apply for the purposes of Part A of this announcement and the Post-Offer Undertakings:

"City Code"	means the City Code on Takeovers and Mergers;
"Comcast"	means Comcast Corporation, a company incorporated in Pennsylvania with its registered office in One Comcast Center, Philadelphia, PA 19103;
"Effective Date"	means the date on which the Offer becomes or is declared unconditional in all respects;
"Offer"	means the offer by Comcast for the entire issued share capital of Sky to be made following Comcast's announcement of its firm intention to make an offer on 25 April 2018;
"Panel"	means the UK Panel on Takeovers and Mergers;
"procure"	includes taking, continuing to take and preserving the ability to take steps to secure a relevant outcome, including (without prejudice to the aforesaid) by obtaining from any person or entity enforceable obligations and commitments to act and enforcing such obligations and commitments; and, for the avoidance of doubt, a Post-Offer Undertaking by Comcast to "procure" shall subsist and continue in full force and effect irrespective of Comcast's level (if any) of ownership of or control over Sky;
"right to appoint or remove a majority of the board of directors"	shall be construed in accordance with Schedule 6 of the Companies Act 2006;
"RIS"	has the meaning given in the City Code;
"Sky"	means Sky plc, a company incorporated in England and Wales with registered number 02247735;
"Sky Group"	means Sky and its subsidiaries and subsidiary undertakings from time to time;
"Sky UK Limited"	means Sky UK Limited, a company incorporated in England and Wales with registered number 09006991;
"subsidiary"	has the meaning given in Section 1159 of the Companies Act 2006;
"subsidiary undertaking"	has the meaning given in Section 1162 of the Companies Act 2006;
"Supervisor"	means Grant Thornton UK LLP;
"UK"	means the United Kingdom of Great Britain and Northern Ireland;
"undertaking"	has the meaning given in Section 1161 of the Companies Act 2006; and
"voting rights"	shall be construed in accordance with Schedule 6 of the Companies Act 2006.

Further Information regarding the Post-Offer Undertakings

The Post-Offer Undertakings set out in Part A of this announcement are in a form acceptable to the Panel, are legally binding commitments and, should the Effective Date occur, each of Comcast and Sky must comply with the terms of its respective Post-Offer Undertakings and complete any courses of action committed to within the relevant time periods set out.

Comcast and Sky have each appointed the Supervisor to monitor its compliance with the Post-Offer Undertakings it has given. In respect of its appointment, the Supervisor has agreed a work-plan with the Panel in order to monitor compliance by each of Comcast and Sky with the Post-Offer Undertakings it has given.

Comcast, Sky and the Supervisor will be required to submit periodic reports to the Panel, in accordance with the provisions of Rule 19.5(h) and (i) of the City Code, in respect of the Post-Offer Undertakings.

 

END