FOXA Fox Corporation

By Keach Hagey and Erich Schwartzel 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 21, 2018).

Walt Disney Co. raised its offer to purchase most of 21st Century Fox to more than $71.3 billion in cash and stock, topping an unsolicited offer from rival Comcast Corp. and escalating the bidding war for the coveted media properties.

Disney's new offer is far higher than its original deal, $52.4 billion in stock, and surpasses Comcast's all-cash offer of roughly $65 billion. In addition to having the higher offer, Disney said it also has a regulatory advantage over Comcast in winning a company to help it fight back against new-media competitors like Netflix Inc.

Fox, in a news release, said the new Disney deal "is superior to the proposal" made by Comcast earlier this month. A Comcast spokeswoman had no immediate comment.

Disney and Comcast are battling for prized media assets including the Twentieth Century Fox film and TV studio; U.S. cable networks FX and regional sports channels; international assets such as Sky PLC and Star India; and Fox's one-third stake in the streaming serviceHulu.

Fox and Disney were negotiating terms of an amended agreement over the weekend and had the outlines of a deal by Tuesday, though they were nailing down details like the mix of cash and stock, a person close to the situation said.

Disney submitted its bid Wednesday ahead of a Fox board meeting in London, another person familiar with the situation said. Fox Executive Chairman Rupert Murdoch and Disney Chief Executive Bob Iger met to discuss the new pact.

Disney agreed to pay Fox shareholders roughly 50% in cash and 50% in stock. If the current deal closes, Fox shareholders would own 19% of the combined company, compared with 25% under the old deal.

Some observers have said it might make sense for Disney and Comcast to divide the Fox assets between themselves rather than go through a bidding war, but Mr. Iger said the idea of splitting the businesses is a nonstarter. "We have an agreement in place with [Fox] that precludes that," he said on a conference call Wednesday.

Disney also has time on its side, Mr. Iger said, because its deal with Fox has been through several months of regulatory review. "We believe that we have a much better opportunity, both in terms of approval and the timing of that approval, than Comcast does," he said.

The CEO also highlighted how Fox's programming would boost his company's efforts to launch a Disney-branded streaming service next year and compete directly with Netflix. "Direct-to-consumer distribution has become an even more compelling proposition in the six months since we announced the deal. The consumer is voting -- loudly," he said.

The fight for Fox is part of a scramble by media, telecom and cable companies to get bigger as technology-industry superpowers disrupt old ways of doing business.

Neither proposed deal includes Fox News, Fox Sports 1, the Fox broadcast network or its television stations. In either scenario, those assets would be spun off into a new company, for the moment dubbed "New Fox."

On a per-share basis, the new Disney deal values the Fox assets being acquired at $38 a share, compared with Comcast's offer of $35 and Disney's original offer of $29.54, based on the last trading day before it was announced. On Wednesday, Fox's Class A shares rose 7.5% to $48.08, and Comcast shares added 1.8% to $33.39.

Disney shareholders didn't appear to mind stomaching the higher price as the stock rose 1% to $107.15. Some analysts said the move was foolish. "We didn't like the deal at the prior price, and we like it substantially less now," said Doug Creutz of Cowen & Co. The analyst said a Disney-Fox tie-up isn't the way to win the direct-to-consumer fight.

A continuing bidding war between Disney and Comcast could be a strain on both companies' balance sheets. Disney Chief Financial Officer Christine McCarthy said the company no longer expects to complete a $20 billion share repurchase announced with the initial deal in December.

Moody's placed Disney on review for a credit-rating downgrade on Wednesday, citing its discomfort with how long it would take Disney to return to investment-grade leverage. S&P Global Ratings said it could lower its ratings on Disney by up to three notches depending on the final deal.

Fox's board and shareholders have had to weigh a number of factors as they measure the offers, including their structure. More stock in the deal has tax advantages for Fox shareholders. These tax advantages might be particularly large for Fox shareholders, such as the Murdoch family, who have held Fox's stock for a long time and thus face a potentially large capital gain to pay taxes on if it is sold for cash. Mr. Murdoch and his family have a 17% economic interest in 21st Century Fox. 21st Century Fox and Wall Street Journal-parent News Corp share common ownership.

Disney said the stock portion of the deal is expected to be tax-free to 21st Century Fox shareholders. Other shareholders, particularly the large institutional shareholders that are Fox's biggest investors, may care less about taxes.

Disney's introduction of cash into its latest bid would mean that the spinoff of New Fox was no longer tax-free to shareholders, as it had been in its previous all-stock deal, according to independent tax analyst Robert Willens.

"The deal on the table has one negative, and that is that, with New Fox, all the shareholders have to pay a tax," said Mario Gabelli, chairman and CEO of Gamco Investors, which owns Fox stock. However, he added, "that was the same as the Comcast bid," which was all-cash.

Because of the new Disney offer, Fox postponed the special meeting of shareholders it had originally scheduled on July 10 to "a future date."

Disney's offer puts a "collar" on the stock portion, saying Fox shareholders would receive Disney shares equal to the $38 price so long as Disney's stock price is between $93.53 and $114.32.

Regulatory hurdles have been a consideration. The Justice Department would have to sign off on either deal, and Fox cited regulatory concerns among its reasons for rebuffing Comcast's initial approach.

However, last week, a judge struck down the Justice Department's attempt to block AT&T's acquisition of Time Warner Inc. Comcast believes the court's approval of a "vertical" merger between a distributor and a content company should nullify Fox's regulatory concerns, since a Comcast-Fox tie-up would have similar characteristics, people close to the cable giant say.

Mr. Iger said Wednesday that he still believed a "vertical" merger of the kind Comcast proposed for the Fox assets faced regulatory headwinds.

--Austen Hufford and Dana Mattioli contributed to this article.

Write to Keach Hagey at keach.hagey@wsj.com and Erich Schwartzel at erich.schwartzel@wsj.com

(END) Dow Jones Newswires

June 21, 2018 02:47 ET (06:47 GMT)

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