By Simon Jessop
LONDON (Reuters) - Top-20 Sky (L:SKYB) investor Crispin Odey said he expects the bidding war for the media company to carry on over the summer and that the European broadcaster could be worth as much as 50 billion pounds ($65.5 billion).
The pay-TV operator is the subject of rival bids from U.S. peer Comcast Corp (O:CMCSA) and Rupert Murdoch-majority owned Twenty-First Century Fox (O:FOXA), which currently owns a 39 percent stake in Sky but wants to buy it outright.
Fox's long standing 10.75 pounds per share offer was trumped by a 12.50 pound per share bid from Comcast in April, valuing Sky at $31 billion.
Meanwhile, Comcast and Walt Disney Co (N:DIS) are going head-to-head in the United States to buy most of Fox's TV and movie assets, looking to fight the threat of programming-rich rivals Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN). Disney upped its bid for Fox's assets on Wednesday, outstripping Comcast's offer.
The move has raised speculation Fox will in turn raise its bid for Sky, to top Comcast's bid.
Odey, the founder of hedge fund Odey Asset Management, told Reuters the Disney bid pushed Sky's valuation to around 13.50 pounds a share, but his assessment of Sky's free cashflow suggested that the rival bidders could send that figure much higher.
Sky shares jumped more than 3 percent on Wednesday's news and on Thursday rose a further 1 percent to 13.94 pounds by 1135 GMT.
"We've done the numbers and the point is debt is so easy to serve and so cheap, that they could easily be paying 18 pounds for Sky," he said, adding that was at the lower end of expectations.
The key for a company valuation of around 50 billion pounds hinged on the potential for free cashflow to jump from 1.6 billion pounds to around 2.5 billion pounds over the next year as sunk programming costs feed through to improved sales, Odey said.
"My point is if your free cashflow looks like it's going to come through at 2.5 billion, which it should do within a year, what are you willing to pay for that? Well, you're willing to pay 50 billion pounds," Odey said, or around 26 pounds a share.
The other factor to consider, Odey said, was how each of the rival bidders valued their existing customers, with Sky's valuation of its customers just a third of theirs.
Liberum analyst Ian Whittaker however, said the room for further upside may be limited.
"We do not think it will be bid more than 10 percent above Comcast's bid, implying 1375p, which is where the shares are now," he said.