The fight for Fox continues

August 2018 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

August 2018 Issue

Walt Disney Co. won US regulatory approval to acquire Twenty-First Century Fox Inc’s entertainment assets for $71.3bn in late June, marking the latest twist in the ongoing saga of Fox’s sale.

As a result of the approval, Disney’s proposed acquisition of Fox’s assets edged ahead of Comcast Corp’s competing bid of $65bn, at the time of writing. Earlier in June, Fox accepted an improved bid from Disney, which upped its offer following Comcast’s competing bid. Disney’s revised $38-a-share price is around $10 per share higher than the company offered in December and $3 above Comcast’s offer. Disney’s latest offer also includes a mix of cash-and-stock, whereas its December offer was all-stock. Under the terms of the latest offer, Disney will absorb $13.8bn of Fox’s existing debt, bringing the total value of the deal to $85.1bn.

Fox plans to retain its news and sports divisions, creating a new company for those holdings, which include the flagship Fox News Channel. However, Disney’s bid will require the company to divest Fox’s 22 regional sports networks, which it reportedly would be willing to do. The channels are valued at around $19bn, according to MoffettNathanson Research. The Justice Department believes that without the divestitures, “the proposed acquisition would eliminate the substantial head-to-head competition that currently exists between Disney and Fox and would likely result in higher prices for cable sports programming”.

According to a Securities and Exchange Commission filing, it would appear that Disney has the right to match any rival offer for Fox: “21CF management noted that Disney’s (20 June) proposal, as compared to Comcast’s, provided for higher nominal value, enhanced opportunity for value appreciation through its stock component, certainty of value through its collar mechanism, the opportunity for stockholders to elect cash or stock consideration, as well as certain enhancements to the existing merger agreement’s allocation of regulatory risk.

“Comcast’s proposed contractual allocation of regulatory risk…merely matched the regulatory efforts and reverse termination fee provisions in the original combination merger agreement and did not offer enhanced protections to address the higher regulatory risk posed by a transaction with Comcast,” the filing continued. The board also decided that a “transaction with Comcast presented unique regulatory uncertainties and (Comcast’s) proposal did not sufficiently limit regulatory uncertainty associated with a potential strategic transaction with 21CF”.

The popularity of Netflix and other streaming services has created a rush for content in the media sector, and spurred both Disney and Comcast to pursue a deal for Fox. Acquiring Fox would be particularly advantageous for Disney which is set to launch its own streaming service in 2019. Fox’s well-known media assets would help kick-start Disney’s streaming service in the face of stiff, established competition from Netflix and others.

The Hulu streaming service has also played an important role in shaping the ongoing fight for control of Fox. Fox’s 30 percent stake in the Hulu joint venture is up for grabs. When Comcast acquired NBCUniversal in 2011, the DOJ forced the company to take a passive role in the management of Hulu for seven years out of concern that Comcast might try to steer Hulu away from competing with its core cable systems business. Accordingly, any deal that would give Comcast majority control of Hulu could be a hurdle for antitrust regulators “given that the DOJ placed conditions on Comcast’s ownership of even a minority position in Hulu, LLC in the now-expiring 2011 consent decree”, according to the SEC filing.

Comcast had been confident of gaining regulatory approval for its Fox bid. At the time of the company’s offer, the company’s chief executive Brian Roberts said that he was “highly confident” that Comcast would “obtain all necessary regulatory approvals in a timely manner and that our transaction is as or more likely to receive regulatory approval than the Disney transaction”.

Richard Summerfield