Comcast, Raising Its Bid for Fox, Ratchets Up a Duel With Disney
Posted June 14, 2018 12:20 a.m. EDT
Comcast announced an offer worth $65 billion for the bulk of 21st Century Fox’s businesses on Wednesday, setting up a showdown with the Walt Disney Co. for Rupert Murdoch’s media empire.
The all-cash bid by Comcast, the largest cable company and broadband provider in the United States, came a day after a federal judge approved a merger between AT&T and Time Warner. Comcast executives had awaited the decision in that case before mounting their bid for 21st Century Fox.
The one-upmanship reflects an industry under threat from Silicon Valley, where deep-pocketed technology companies like Netflix and Amazon are stealing audiences, ad dollars and big name creative talents.
In December, Disney struck an all-stock deal, worth $52.4 billion at the time, for Fox’s assets, shortly after Fox rebuffed an offer from Comcast that was worth roughly $60 billion, all in stock.
Now Comcast is back — creating a likely bidding war for a conglomerate that Murdoch has spent a lifetime building, and setting up a showdown between the Comcast chief executive Brian L. Roberts and his counterpart at Disney, Robert Iger, who has staked his legacy on this deal. There is bad blood between Disney and Comcast. The rancor stretches back to at least 2004, when Comcast tried to swallow Disney. The Disney board fought off that attempt, but Iger and his top lieutenants have never forgotten it. Anyone on the Jurassic Park rides at NBCUniversal’s theme parks can see what Comcast, which owns NBCUniversal, thinks of Mickey Mouse: One of Disney’s famous mouse ear hats floats next to a raft that a marauding dinosaur has destroyed.
“Comcast seems hellbent on winning this time, and I think the narrative in Philadelphia is that Brian should have listened to his gut in 2004 and bought Disney,” said Craig Moffett, a co-founder of the research firm MoffettNathanson and a longtime media analyst, referring to Comcast’s headquarters. “He seems very personally committed to this.”
In a statement, Fox said it planned to review Comcast’s offer. Representatives for Disney declined to comment.
There are questions about how hard Disney will fight. As Doug Creutz, a media analyst at Cowen and Co., put it in a client note on Wednesday, Iger “has never (as far as we are aware) been put in a position where a proposed acquisition faced a significant competitive challenge such as this, so it’s hard to gauge his sensitivity to price.”
Iger does have a history of paying premiums for properties he wants, albeit on a much smaller scale. The most obvious example is Pixar, which Disney bought in 2006 for $7.4 billion, or $9.4 billion in today’s money. The price was criticized at the time as exorbitant — wrongly, as it turned out, given the value that Disney has since gotten from the animation studio. Iger said on an earnings conference call last month that Disney’s plans to introduce an entertainment-focused streaming service next year were “not dependent at all on the assets we’re buying from Fox.” But the Fox content would certainly help make Disney’s streaming strategy a success.
As part of the deal, Iger agreed to delay retirement to the end of 2021, from July 2019. Until now, his run as chief executive — he took over in 2005 — has been considered a triumph. Comcast’s stealing Fox would become the defining event of his tenure.
Comcast’s new offer is about 19 percent higher than Disney’s proposal, according to its statement. It also includes contractual assurances such as a reverse breakup fee — worth about $2.5 billion — in the event a transaction is blocked by the government.
Murdoch and his company’s board had rejected Comcast’s earlier offer partly because of concerns that the government would block the deal, but the AT&T-Time Warner decision allayed many of those worries.
Roberts needed to move quickly. Fox shareholders are scheduled to vote on the Disney deal on July 10, but that date will be moved back if Murdoch and the Fox board decide to support Comcast’s offer. Disney would then have five days to respond with a counter bid. Roberts wrote in a 700-word letter to Murdoch and his sons — James, the chief executive of Fox, and Lachlan, the executive chairman — that he “long admired what the Murdoch family has built,” but that he and his company were “disappointed” by Fox’s decision to engage Disney.
“In light of yesterday’s decision in the AT&T/Time Warner case,” Roberts continued, “we are pleased to present a new, all-cash proposal that fully addresses the board’s stated concerns with our prior proposal.”
The businesses that Murdoch has agreed to sell include the 20th Century Fox film and TV studios, almost two dozen regional sports networks like the New York Yankees’ YES channel, a lineup of cable networks that include FX, and a 30 percent ownership stake in the streaming service Hulu.
But the key attractions for Comcast are Fox’s broad international assets. Among them are Fox’s 39 percent stake in the European pay-TV operator Sky and its control of Star, one of India’s largest media companies, which reaches 700 million people every month, according to the company.
Murdoch’s overseas business accounts for 27 percent of annual sales, about $7.8 billion. Comcast, whose cable business is strictly a domestic operation, draws in only 9 percent of its revenue from foreign agreements, largely through NBCUniversal.
Comcast has already made an offer to buy the other 61 percent of Sky in a separate deal. The Fox News cable network, the Fox broadcast stations, the Fox Business Network and the sports network FS1 would not be part of a transaction.
A Fox combination could help Comcast amplify its streaming services. Netflix, YouTube, Apple and Facebook are spending billions of dollars a year to create original series and are competing directly for content and sports programming.
Hulu, which has more than 17 million subscribers, would come under Comcast’s control if it pulls off the acquisition. “We think it’s a wonderful asset,” NBCUniversal’s chief executive, Stephen Burke, said Wednesday on a conference call with analysts. “It’s an important part of this deal, and we’d be very interested in growing that business in the future.”
AT&T’s decisive court victory — the judge said the merger could move forward without requiring the telecommunications giant or Time Warner to divest any assets — creates a blueprint for Comcast. Both AT&T and Comcast are distributors seeking to buy content companies that they do not directly compete with, in what is known as a vertical acquisition. Comcast, for example, already pays Fox for the right to carry its channels like FX and Fox News.
“The AT&T ruling pretty much eliminated the vertical issue from at least where the world stands now,” said Ketan Jhaveri, a former antitrust lawyer for the Justice Department, which had sued to block the merger. “It’s not hard to make the comparison from AT&T buying Time Warner to Comcast buying Fox.”
Even so, the combination of Comcast and Fox would put more content and distribution under one company’s control than even the AT&T deal with Time Warner. In his ruling, the judge wrote that “the temptation by some to view this decision as being something more than a resolution of this specific case should be resisted by one and all!”
In the weeks ahead, Comcast and Disney are expected to work overtime to convince Fox shareholders that each will have an easier time passing regulatory muster.
Iger is expected to contend that Disney’s regulatory process will be faster because it has a head start, having announced its deal in December. Comcast maintains that the two timelines will be comparable.
Unlike its merger with NBCUniversal in 2011, Comcast said, a deal with 21st Century Fox would not undergo a regulatory review by the Federal Communications Commission because the transaction would not involve the transfer of broadcast licenses, which requires a rigorous public interest and competition review by the agency.
Either merger would be the first test for the Department of Justice since its sweeping court defeat this week. Analysts say it may be reluctant to challenge another major media deal.
“The regulatory backdrop is now more positive for companies in a ‘get big’ environment,” Amy Yong, an analyst at Macquarie Research, said. Two businesses that would receive particular regulatory scrutiny would be Fox’s film business and its 22 regional sports networks.
In 2017, Disney and Fox controlled a combined 35 percent of the box office in North America. This year, the two make up 50 percent. Comcast and Fox controlled a combined 28 percent last year; this year, the total is 25 percent.
As for sports, NBCUniversal owns nine regional networks of its own, while Disney owns ESPN, the most popular national sports network.