US approves Disney's buy of Fox assets
CFRA research senior equity analyst Tuna Amobi on the bidding war between Disney and Comcast over 21st Century Fox’s assets.
The U.S. Justice Department approved Walt Disney Co.'s proposed $71 billion acquisition of 21st Century Fox Inc. assets on Wednesday, on the condition that Disney divest Fox's regional sports networks.
The approval gives Disney a leg up in its battle with Comcast Corp. for control of key pieces of Rupert Murdoch's entertainment empire. The conditions placed by the Justice Department allow Disney to still absorb the parts of Fox that have become key to its long-term strategy, namely the company's movie and television studio, as well as its stake in the Hulu streaming service.
The Wall Street Journal reported earlier Wednesday that the Justice Department was expected to approve the Disney-Fox merger as soon as Wednesday.
The Justice Department said Disney's purchase of Fox's regional sports networks would likely result in higher prices for sports programming on cable; as a result, Disney agreed to divest the 22 sports networks.
"American consumers have benefited from head-to-head competition between Disney and Fox's cable sports programming that ultimately has prevented cable television subscription prices from rising even higher," said Assistant Attorney General Makan Delrahim.
Disney and Fox's initial all-stock pact in December, valued at $52.4 billion, was a prelude to a bidding war. Earlier this month, Comcast put in an unsolicited $65 billion all-cash bid for the assets, prompting Disney to boost its offer to a $71.3 billion mix of cash and stock.
Disney shares rose 1.1% to $105.41 in midday trading following the Justice Department's announcement. The company said it would have 90 days following the closing of the Fox deal to sell the sports networks.
The Wall Street Journal also reported Wednesday that Comcast was exploring partnerships with other companies and private equity partners in case it needs more cash for another round of bidding that takes the price even higher. Such a partnership could offload some assets like the sports networks, potentially easing some of the regulatory hurdles that a Comcast-Fox deal would face.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| FOXA | FOX CORP. | 45.64 | -1.84 | -3.88% |
| DIS | THE WALT DISNEY CO. | 115.07 | +5.94 | +5.44% |
| CMCSA | COMCAST CORP. | 42.88 | -0.60 | -1.38% |
Both Disney and Comcast are vying for premier media assets that include the Twentieth Century Fox film and TV studio; a stake in streaming service Hulu; and international businesses such as Star India and European pay TV giant Sky PLC.
Disney said in a securities filing last week that it was willing to divest Fox businesses generating as much $1 billion in Ebitda, an increase over the $500 million the company stated in its original merger agreement with Fox.
Fox News and the Fox broadcast network aren't for sale and will be spun out into a separate company with other assets. 21st Century Fox and Wall Street Journal parent News Corp share common ownership.
Disney executives have maintained that their tie-up with Fox would be more easily approved by regulators than Comcast's. Disney's deal represents a horizontal merger, in which direct rivals combine, whereas Comcast's offer would marry separate parts of the distribution and production food chain. The regional sports networks were expected to be a sticking point for regulators.
"We believe that we have a much better opportunity, both in terms of approval and the timing of that approval, than Comcast does," Disney Chief Executive Robert Iger said on a conference call earlier this month announcing his revised agreement.
Fox said in a proxy filing that it decided to keep its pact with Disney for a variety of reasons, including the potential regulatory risks of a deal with Comcast. Comcast has argued that the failure of the Justice Department's attempt to block AT&T Inc.'s $85.4 billion purchase of Time Warner Inc. removed any such regulatory concerns.
Comcast already has begun discussions with Justice Department officials about their proposed Fox deal, and the cable giant's executives believe their timeline for regulatory approval will be swift, people close to the company have said.
Fox's film and television library has become a key part of Disney's plan to launch a direct-to-consumer streaming service next year that pipes the studio's programming straight into the home. Disney has completed several high-profile acquisitions in the past several years, including Marvel Entertainment and Lucasfilm Ltd., but the company has never had to engage in a public bidding war.
A Fox acquisition also would be the biggest purchase in Disney's history. To finance the pricier deal, Disney said it wasn't expecting to complete a $20 billion share repurchase plan it had announced in December with its $52.4 billion bid.
21st Century Fox is the parent company of FOX Business and Fox News.