DIS Walt Disney Co

To help win approval from U.K. regulators, entertainment giant offers to buy news unit

By Ben Dummett and Stu Woo 

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 (April 4, 2018).

LONDON -- Walt Disney Co. is lending a hand to 21st Century Fox in the U.K., and it may be the long-term beneficiary.

Disney has offered to buy Sky News to help Fox win regulatory approval of its protracted effort to take over British pay-TV giant Sky PLC, a proposal designed to ultimately help Disney expand its own international presence and fend off a rival offer for Sky from Comcast Corp.

Fox's $16 billion plan to take full control of Sky has faced a lengthy review by U.K. regulators, who have been examining whether it would give the Murdoch family too much influence in British media. On Tuesday, Fox attempted to alleviate those concerns and bolster its position in a three-way trans-Atlantic media-merger battle.

Disney has separately agreed to a $52 billion acquisition of the majority of Fox's assets, including its film studios and 39% stake in Sky. Disney said on Tuesday if the British government allows Fox to consolidate all of Sky, it is open to acquiring Sky News, an unprofitable 24-hour news channel, even if the larger transaction doesn't proceed. Disney pledged to "sustain the operating capital of Sky News and maintain its editorial independence."

Fox is trying to finally secure approval for its Sky takeover after Comcast launched its own $31 billion offer for Sky in February, a GBP12.50-a-share informal bid (about $17.50) that would top Fox's GBP10.75-a-share offer.

The proposal regarding Sky News is just the latest move in a four-way M&A battle as media companies fight for prominent assets to give them broader and more global reach in a consolidating industry.

Fox first proposed in late 2016 to buy the 61% of Sky it didn't already own. A year later, Fox agreed to sell the majority of its entertainment assets to Disney, which sees Sky as an important component of that deal and important to its plan to expand its international footprint.

But Comcast has been trying to get in on the action. Its rival pursuit of the majority of Fox's entertainment assets, including the Sky stake, was rebuffed in favor of Disney. Then in February, Comcast made an informal offer to acquire Sky and scuttle Fox's yearslong pursuit of the U.K. pay-TV giant.

Tuesday's news is the latest effort by Fox to defend its pending deals. British authorities began reviewing Fox's bid for Sky before Disney made its approach for Fox assets. The review has continued because there are no guarantees the Disney deal will pass U.S. regulatory muster and ultimately close.

Disney's promise to buy and continue operating Sky News -- regardless of the broader Fox acquisition -- is designed to assuage concerns by U.K. regulators the Murdoch family's influence on local media would expand.

In a preliminary finding earlier this year, U.K. antitrust authorities said Fox's full ownership of Sky and its Sky News operations would give Fox Executive Chairman Rupert Murdoch too much influence in British media.

The Murdoch family controls a 39% voting interest in both Fox and in News Corp, which publishes major British newspaper including the Sun, the Times of London and the Sunday Times. News Corp also owns The Wall Street Journal.

The suitors are after Sky for its unusually large breadth of services and reach. It is both a telecom operator -- selling TV, internet and phone services -- and a media company with original news, sports and entertainment programming.

Sky, which operates in seven European countries, is a smaller version of what American media giants are trying to become: owners of TV and internet pipes as well as the programming that flows through them. The model is what AT&T Inc. is trying to build through its $85 billion pursuit of Time Warner Inc., a deal that is being scrutinized in court after the U.S. Justice Department sued to block the merger.

Fox said in February it would create an independent board for Sky News, and fund the business for five years, to win regulatory support.

Fox sweetened the offer on Tuesday. Fox said it could sell Sky News to Disney or, alternatively, establish Sky News as a separate company within the bigger Sky group, with an independent board. It also pledged 15 years of guaranteed funding for the news channel.

"The enhanced firewall remedies we proposed to safeguard the editorial independence of Sky News addressed comprehensively and constructively the [regulators'] provisional concerns," Fox said.

The British antitrust regulator, the Competition and Markets Authority, wouldn't comment on the Fox proposals.

The authority has until May 1 to make a final recommendation to the U.K. government, which then must decide whether to back the Fox-Sky deal, approve it with conditions or reject it.

Even with government approval, the Fox-Sky deal isn't certain. At least 75% of Sky's shareholders, not including Fox, need to support the takeover in the face of competition from Comcast, which hasn't submit a formal offer.

Sky's share price trades higher than the Comcast proposal, indicating that investors are expecting a bidding war. Hedge fund Elliott Management Corp. has been gradually increasing its stake in Sky, most recently to 2.8% on March 29.

Sky shares closed 2.12% higher at GBP13.25 in London trading.

Write to Ben Dummett at ben.dummett@wsj.com and Stu Woo at Stu.Woo@wsj.com

(END) Dow Jones Newswires

April 04, 2018 02:47 ET (06:47 GMT)

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