By Shalini Ramachandran 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 (May 24, 2018).
Comcast Corp. is escalating its threat to disrupt Walt Disney
Co.'s megadeal to buy the bulk of 21st Century Fox Inc.'s assets, a
potential move that could reshape the power structure in the
entertainment industry.
Comcast said on Wednesday it is in advanced stages of preparing
a cash offer that would top Disney's all-stock, $52.4 billion deal
for Fox's entertainment businesses. One major Fox shareholder is
also urging the company to engage with Comcast, adding pressure as
the cable giant gets ready to appeal directly to Fox
shareholders.
Fox's board last year rejected Comcast's original bid, even
though it exceeded Disney's offer, because directors believed it
was more risky with regulators and would require the sale of too
many valuable assets to win approval.
Since then, Comcast has been laying the groundwork to make a
case for why it should be the one to acquire Fox's assets, setting
the stage for a potential bidding war that would pit Comcast Chief
Executive Brian Roberts against Disney CEO Robert Iger for
businesses long controlled by media titan Rupert Murdoch.
The Fox assets -- which range from international pay-TV
distribution to cable networks and a stake in streaming giant Hulu
-- are some of the most-prized entertainment properties likely to
come on the market for some time, and the Murdoch family's
willingness to sell these assets has come as a surprise to many in
the media industry.
The rare acquisition opportunity, combined with the need to
significantly expand overseas and acquire new distribution and
content, is adding a dimension of urgency for both Comcast and
Disney.
Comcast is dealing with a saturated pay-TV market at home and
could find new growth with Fox's international assets in countries
where the penetration of cable services is lower.
For Disney, a Fox tie-up would immediately give it an advantage
in its fight with Netflix Inc. by bolstering the movies and shows
available for its planned streaming service and giving it majority
ownership in Hulu.
Earlier this month, The Wall Street Journal and others reported
that Comcast was considering making a play to break up the Disney
deal and had lined up around $60 billion in financing. While no
final decision has been made on whether it will make a new run at
Fox, Comcast on Wednesday said the work to finance the offer is
well advanced.
The intended audience for Comcast's announcement is as much Fox
investors as Fox management. The company is preparing to begin
talks with Fox shareholders as soon as this week and wanted to send
a message to them that it is serious about an all-cash offer, a
person close to Comcast said.
Activist investor Chris Hohn would back a Comcast cash bid for
Fox's assets over the current deal with Disney, the investor told
Rupert Murdoch in a private letter Wednesday in which he urged the
media mogul to engage with Comcast on a deal. In the letter -- a
copy of which was reviewed by the Journal -- Mr. Hohn disclosed he
owned a 7.4% stake in Fox and said he was unconcerned about
regulatory risk with a Comcast-Fox deal.
Mr. Hohn also told Mr. Murdoch he believes the Murdoch family
could have a conflict of interest that would lead them to support
the Disney bid, at a lower price, because the all-stock deal would
be better for their taxes than the cash offer from Comcast.
On the company's earnings call this month, Lachlan Murdoch, the
executive co-chairman of 21st Century Fox, declined to comment on
what he called speculation about Comcast. He said Fox was committed
to its agreement with Disney, but Fox's directors "of course are
aware of their fiduciary duties on behalf of all shareholders."
Comcast attempted to allay the Fox board's prior concerns about
regulatory approval and implied it would be willing to agree to a
termination fee. Comcast said the regulatory risk provisions and
breakup fee "would be at least as favorable to Fox shareholders as
the Disney offer."
Because Comcast has yet to bid formally, Disney has no plans to
boost its offer or present a mix of cash and stock, a person
involved in the Disney-Fox transaction said.
21st Century Fox and Wall Street Journal-parent News Corp share
common ownership.
Comcast's moves have complicated Disney's planned acquisition.
Over the past several months, Disney has operated on the assumption
it would close the deal, including reorganizing the company and
granting a contract extension to Mr. Iger so he could oversee the
tie-up.
The takeover battle is the clearest evidence so far of the
potential implications for the government's lawsuit to block
AT&T Inc.'s proposed acquisition of Time Warner Inc.
Comcast made its announcement Wednesday because its executives
were worried Fox and Disney might rush a shareholder vote before
the judge's decision on the AT&T-Time Warner deal came down,
according to people close to Comcast. They said Comcast is still
likely to wait until a judge rules on the AT&T deal before
making a formal offer, since the government's fight against
AT&T was a key concern for Fox's board.
A decision in the AT&T case is expected by June 12.
The dates for the Disney and Fox meetings haven't yet been
announced. Mr. Hohn has urged Fox to not set a day before the start
of July, to give Comcast time to bid after the AT&T
decision.
Even if the ruling is unfavorable for AT&T, Comcast may
proceed with its Fox pursuit, one of the people said. The cable
company's executives believe AT&T, as a national wireless and
pay-TV provider, is subject to greater scrutiny than Comcast, which
doesn't have national reach as a cable TV and broadband provider,
the person said.
Disney executives see Comcast, which owns NBCUniversal, as
having scale in content and broadband that would still trigger
regulatory scrutiny, according to a person familiar with the
matter.
Comcast executives have already talked to Justice Department
officials about their potential pursuit of Fox as part of
discussions with regulators about the Disney-Fox deal, which is
undergoing review, a person close to Comcast said.
The assets Comcast and Disney are seeking to purchase include
the Twentieth Century Fox TV and film studio; cable networks;
international properties, including Star India and its stake in
U.K. pay-TV company Sky PLC; and Fox's stake in streaming service
Hulu.
Comcast has offered to buy Sky for about $30 billion, seeking to
scuttle Fox's agreement to buy the rest of Sky. While Fox has dealt
with an extensive regulatory review in the U.K., Comcast is
unlikely to face an antitrust review there.
The U.K. culture secretary is expected to make a final decision
on Fox's offer for Sky by June 13, and the Europe Union's antitrust
regulators are scheduled to make a decision on Comcast's Sky offer
by June 15.
--Ben Dummett and David Benoit contributed to this article.
Write to Shalini Ramachandran at shalini.ramachandran@wsj.com
and Erich Schwartzel at erich.schwartzel@wsj.com
(END) Dow Jones Newswires
May 24, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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