DIS Walt Disney Co

By Erich Schwartzel 

Walt Disney Co. Chief Executive Robert Iger expressed confidence that his company would prevail in its bid for key assets of 21st Century Fox, despite recent moves by Comcast Corp. to make a competing offer.

Appearing to brush aside reports Monday that the cable giant was preparing for a potential attempt to outbid Disney for Fox, Mr. Iger on Tuesday said on a conference call discussing his company's financial results with Wall Street analysts that he is "confident the assets we're in the process of acquiring" will easily fit within Disney once the deal is approved.

Whoever lands the Fox assets stands to gain a significant advantage in a media landscape under siege from shifting consumer habits and a need to mount defenses against direct-to-consumer competitors like Netflix Inc. Disney is hoping to acquire Fox's film and television studio, cable networks and international properties.

Disney's $52.4 billion, all-stock deal, announced in December, was seen as a chance for the world's biggest entertainment company to become even more dominant. Disney executives have indicated they expect the deal to close next year. (21st Century Fox and The Wall Street Journal publisher News Corp share common ownership.)

Comcast may upend those plans. The cable company is making preparations for a possible hostile offer for the Fox assets and has lined up financing that would enable an all-cash bid, people close to the situation say. Before agreeing to the Disney deal, Fox rejected an offer from Comcast that was 16% higher, citing regulatory hurdles.

Comcast would be more motivated to pursue a hostile bid for the Fox assets if AT&T Inc.'s proposed acquisition of Time Warner Inc. survives a government antitrust suit, the people close to the situation say. That's because both deals would be "vertical" transactions that marry content and distribution.

Still, there is no guarantee that a favorable outcome for AT&T-Time Warner would lead antitrust enforcers to bless a Comcast-Fox tie-up, as there are some important differences between the deals. Comcast already owns a major group of media networks through its NBCUniversal unit, unlike AT&T. And Comcast and Fox are both major owners of regional sports networks, so the cable company might have to divest itself of some of those assets to complete a deal.

If a bidding war were to kick off, Disney may need to increase its offer or present a mix of cash and stock. The company should have no problem raising the debt needed in such a scenario, said Robin Diedrich, an analyst at Edward Jones.

Though both companies have strong credit ratings, Disney's balance sheet "is in a stronger position to do that" than Comcast's, she said.

Disney's second-quarter earnings significantly beat Wall Street expectations and showed strong growth in the movie studio and parks divisions. Net income rose 23% to $2.94 billion. The hit performance of "Black Panther" and an uptick in business at Disney's parks and resorts drove overall revenue up 9% to $14.5 billion.

Disney's results were released after the market closed. The stock fell slightly to $101.19 in after-hours trading.

The earnings came about one month after the rollout of ESPN Plus, a direct-to-consumer sports programming service that the company hopes will help reverse a continuing decline in traditional ESPN subscribers. A second streaming service, focusing on Disney's entertainment brands like Marvel Studios, will premiere in late 2019.

After Mr. Iger acknowledged ESPN subscriber losses on an earnings call in August 2015, Wall Street has viewed the decline as an existential liability in the company's most valuable business. Mr. Iger said response to ESPN Plus has been "enthusiastic" and its conversion rates from free trials have been "good so far," but he didn't offer specifics beyond that.

In a bid to target harder-to-reach younger male viewers, Disney has lined up UFC fighting to be a cornerstone of ESPN Plus. The deal, announced Tuesday, is for exclusive rights to stream 15 live UFC events. The five-year pact is valued at $750 million over the life of the deal, according to a person familiar with the matter.

In the second quarter, the company's cable-networks segment, which includes ESPN, saw operating income drop 4%, partially due to costs associated with ESPN Plus.

Properties acquired in a potential Fox deal, such as the company's regional sports networks and National Geographic, could be added to the offerings on Disney's streaming services, Mr. Iger said.

Marvel Studios, along with other studio divisions Disney Animation, Pixar Animation Studios and Lucasfilm, will play a crucial role in luring consumers to a second Disney streaming service launching next year. Mr. Iger said the family-entertainment service will offer a "rich mix of beloved classics, recent releases and new content."

If the Fox deal were to go through, Disney would become the majority owner of the Hulu streaming service and plans to produce more original programming for the service, he added.

Disney's strong quarter was primarily driven by two divisions: studio entertainment and parks and resorts.

Studio-entertainment revenue rose 21% to $2.5 billion, a reflection of the company's unprecedented, record-breaking roll at the box office. The company has nine of the top 10 biggest domestic box-office openings of all time -- all of which have been released in the past six years.

February's "Black Panther" has grossed more than $1.3 billion world-wide so far, and is currently the third-highest grossing movie of all time in the U.S. and Canada at $693 million. The studio's current release, "Avengers: Infinity War," has grossed $1.2 billion globally in about two weeks of release.

The quarter's other big performer, Disney's parks and resorts, saw revenue rise 13% on the increased guest spending and attendance at Walt Disney World Resort and higher average ticket prices at its U.S. parks, among other factors. Overseas locations in Paris and Hong Kong posted attendance increases while Shanghai Disney Resort saw fewer visitors.

--Maria Armental and Joe Flint contributed to this article.

Write to Erich Schwartzel at erich.schwartzel@wsj.com

(END) Dow Jones Newswires

May 08, 2018 19:46 ET (23:46 GMT)

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