DIS Walt Disney Co

By Erich Schwartzel and Joe Flint 

LOS ANGELES -- Comcast Corp. and Walt Disney Co. are fighting to win over 21st Century Fox Inc. shareholders and acquire major assets of Rupert Murdoch's media empire. After the boardroom fight comes the next battle: winning over Washington.

Both bids are expected to get a close look from antitrust regulators at the Justice Department, which earlier this week suffered a bruising loss when a judge approved AT&T Inc.'s acquisition of Time Warner Inc. with no conditions.

The Justice Department's antitrust chief said Wednesday he wouldn't let the outcome deter him from challenging other deals. "I don't think our case or evidence or theories were flawed," Makan Delrahim said, adding that "a different judge could have ruled completely differently."

Comcast executives have begun reaching out to Fox and Comcast shareholders to make their case for the merger, people familiar with the matter say.

Because Disney and Comcast, like Fox, produce television shows and movies, either deal would represent a horizontal merger, in which direct rivals combine, further limiting the number of competitors in the industry.

Comcast's regulatory path is different from Disney's in that it also includes vertical aspects, marrying different elements of the content production and distribution food chain. The AT&T deal was a vertical merger, and its approval was seen as an encouraging sign for Comcast's case.

Antitrust regulators have taken a harder line on horizontal mergers than on vertical ones and often require the buyer to sell off some assets to maintain a level of competition. Disney and Comcast already have signaled that they are willing to give up certain assets to secure approval.

Both companies have indicated a willingness to shed Fox's collection of regional sports networks in the U.S. Comcast has said it would divest itself of any other Fox assets that Disney offers up as regulatory concessions, according to people close to Comcast.

The sports assets that would be combined in either a Disney-Fox or Comcast-Fox deal will get heavy scrutiny. Fox is selling nearly two-dozen regional sports networks including in New York, Los Angeles and Detroit. Its marquee property is the YES Network, the television home of the New York Yankees. Fox's regional sports networks have been valued at $23 billion by industry analysts.

Comcast's nine regional sports networks carry local teams in major markets such as Philadelphia and Chicago. Its SNY, the home of the New York Mets, competes for advertisers with Fox's YES. The addition of Fox's channels would make Comcast the home for local sports in just about every major television market. That could potentially give it leverage in negotiations with other distributors for the rights to carry those channels. However, the channels for the most part don't compete against one another.

Disney doesn't operate any local sports channels, but it owns ESPN, which has several national channels and rights to just about every major sport. The addition of Fox's 22 regional channels could give it tremendous clout both locally and nationally with pay-TV distributors, sports leagues and advertisers.

Neither proposed deal includes the Fox Broadcasting network, its local TV stations, the Fox News and Fox Business channels or the national sports channel Fox Sports 1. The broadcast businesses in particular would have likely made either deal virtually impossible to get past regulators because Disney owns ABC and Comcast owns NBC.

News Corp, parent of The Wall Street Journal, and 21st Century Fox share common ownership.

Hulu, the video-streaming service, will also be a focal point in the regulatory review. Fox, Comcast and Disney each own 30%, while Time Warner -- soon to be part of AT&T -- owns the other 10%. Whoever ends up with the Fox assets would also end up with majority control of Hulu.

When Comcast acquired its stake in Hulu as part of its NBCUniversal acquisition, regulators were concerned that it would have incentive to protect its own core distribution and content businesses rather than enable a potential rival to grow. As a result, the government required Comcast to become a "silent partner" in Hulu with no say in management, an agreement that expires at the end of August.

Comcast has said it would be willing to divest the Fox stake in Hulu if it were to become a sticking point for approval.

Brian Roberts, Comcast chief executive, said Wednesday, "We believe our transaction is as or more likely to receive regulatory approval than Disney's."

Disney CEO Robert Iger said in May that his company was "deep in the regulatory process" and declined to comment further.

The bidders have had different experiences dealing with regulators. Disney has had mostly smaller deals that bring new brands like Pixar Animation and Lucasfilm Ltd. into the fold. Those acquisitions carried few regulatory concerns.

Comcast, meanwhile, saw its deal to acquire NBCUniversal stretch on for more than a year before being approved in early 2011. The acquisition was similar to its pursuit of Fox, in that the deal was seen as a way for a traditional media company to try to guard against disruptions in digital viewing habits. Eventually, regulators provided a list of rules for the company, including a requirement it offer its content to digital video providers under the same terms and conditions it gave cable or satellite providers.

Both bidders are expected to make the case that while well-known U.S. brands such as Twentieth Century Fox are part of an acquisition, from a financial standpoint much of the revenue from the assets Fox is selling comes from European international operations, including pay-TV operator Sky as well as Star India. Both Disney and Comcast are eager to beef up their international assets with Fox's holdings.

Disney's $52.4 billion bid, announced in December, has already spent several months moving through the regulatory review process. However, people close to Comcast counter that it isn't so far behind that it can't catch up. The company has already received a letter from the Justice Dept. seeking information as part of its review of the Disney-Fox transaction.

--Sarah Krouse and Shalini Ramachandran contributed to the article.

Write to Erich Schwartzel at erich.schwartzel@wsj.com and Joe Flint at joe.flint@wsj.com

(END) Dow Jones Newswires

June 14, 2018 19:13 ET (23:13 GMT)

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