News Corp (ASX:NWS) shares sink after Foxtel buyout rejected

A deal would have helped the pay television provider pay off $2.1 billion of debt, but its majority parent declined.

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rubber stamp stamping 'rejected' on paper.

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News Corporation (ASX: NWS) reportedly declined a buyout offer of its troubled pay television subsidiary Foxtel.

An unnamed special purpose acquisition investment company (SPAC) approached News Corporation with an offer to buy Foxtel, according to SMH.com.au.

A SPAC, which is also called a “blank cheque company”, is a publicly listed entity that’s cashed up with the sole purpose of acquiring an unlisted business.

The United States concept is a cousin of the Australian phenomenon of “reverse-listing”, in which a company can float on the ASX without going through the normal rigours of a new listing.

A sale would have provided relief for Foxtel, which owes $2.1 billion of debt.

News Corporation, which owns 65% of the pay TV brand, did not accept the takeover proposal.

In early Monday morning trade, the News Corporation share price is down 0.53% to $24.41. It had rallied for the past month after trading at $18.14 on 30 October.

News Corporation and Foxtel declined to comment to The Motley Fool.

Foxtel’s slow death

Foxtel has been on a downward slope in recent years, losing clientele and revenue to cheaper streaming services from Stan, Netflix Inc (NASDAQ: NFLX), Walt Disney Co (NYSE: DIS) and Amazon.com Inc (NASDAQ: AMZN).

Its one saving grace was live sport, but even that’s now under attack after Nine Entertainment Co Holdings Ltd (ASX: NEC) secured the broadcast rights to Australian rugby union this month.

Nine intends to put much of that content on its Stan streaming service.

The COVID-19 pandemic has also devastated Foxtel’s pubs and clubs subscription base, which was formerly a reliable cash cow.

Last year the pay TV operator tried to raise billions to pay off old debts. It was unsuccessful, and News Corp was forced to chip in $300 million. Minority shareholder Telstra Corporation Ltd (ASX: TLS) declined to put any more money into the sinking ship.

In November, Foxtel finally managed to refinance $1.1 billion of its debt to provide it more breathing space in terms of time due.

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Returns as of 15th February 2021

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Tony Yoo owns shares of Amazon. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon, Netflix, and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney, short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and short January 2021 $135 calls on Walt Disney. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Amazon, Netflix, and Walt Disney. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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