Fox agrees to Disney's raised US$71.3b offer, rejecting Comcast

Walt Disney raised its bid for Twenty-First Century Fox assets to US$71.3 billion as it looks to scuttle Comcast's US$65 billion offer last week.
Disney will also take on about US$13.8 billion of Fox's net debt, implying a total transaction value of about $85.1 billion.
Disney will also take on about US$13.8 billion of Fox's net debt, implying a total transaction value of about $85.1 billion. PHOTO: REUTERS

NEW YORK (REUTERS) - Walt Disney Co raised its bid for the bulk of Twenty-First Century Fox Inc's film and television assets to US$71.3 billion on Wednesday (June 20), sweetening its deal with cash as it looks to upend Comcast Corp's US$65 billion offer.

The new cash-or-stock deal may be attractive to Fox's largest shareholder, Rupert Murdoch, who owns 17 per cent voting shares along with his family. The Murdochs face a large capital gains tax bill under Comcast's all-cash offer. Disney's previous offer was all stock.

Fox's board of directors has now agreed to Disney's latest offer, calling it "superior" to Comcast's, though that doesn't stop other companies from making a bid. The deal still needs to be voted on by shareholders.

Disney and Comcast want to bulk up their own entertainment businesses with Fox's well-known TV shows and movie franchises, like the "X-Men" superheroes and "The Simpsons," to better compete with fast-growing digital rivals Netflix Inc and Amazon.com Inc.

Fox's international media companies Star India and European pay TV company Sky TV Plc appeal to Disney and Comcast for overseas growth.

"These bids are a validation of Fox assets, which can be a big help to someone looking to bring their content business to a global scale," said Drew Weitz, director of equity research at Omaha, Nebraska-based Weitz Asset Management.

The US$800 million Weitz Value Fund owned 550,000 Comcast Class A shares and 450,000 Twenty-First Century Fox Class A shares at the end of March.

Disney's revised offer of US$38 a share, which would be split 50-50 in cash and stock, is US$10 a share higher than Disney's first bid in December 2017. Comcast's last bid was for US$35 a share in cash.

Disney will also take on about US$13.8 billion of Fox's net debt, implying a total transaction value of about $85.1 billion.

The latest move by Disney raises the hurdle for Comcast, which has to decide whether it is feasible to counter with a higher bid.

A Comcast representative declined to comment, but analysts and investors widely expect a counterbid from the largest US cable company and owner of NBC Universal.

"Comcast has to come in with a higher bid," said Mario Gabelli, chairman and chief executive officer of Gamco Investors which owns 10.1 million Fox shares. "They are out of the game right now!"

FOX SHARES JUMP 8 per cent

Disney Chief Executive Officer Bob Iger played down any antitrust concerns in a deal, and said he has been working with regulators around the world for the past six months.

"We believe that we have a much better opportunity both in terms of approval and the timing of that approval than Comcast does in this case," Iger said.

Quoting Bloomberg News, CNBC reported that Disney was nearing US Justice Department approval on the deal. Disney declined to comment immediately on the report.

Comcast may face tougher regulatory scrutiny if the deal involves any transfer of television licenses, which would trigger an Federal Communications Commission review, said Ketan Jhaveri, a former Justice Department attorney who served on its telecommunications task force for internet policy.

AT&T structured its US$85 billion deal to buy Time Warner to avoid such a review.

Fox shares jumped 8 per cent to US$48.23, while Comcast rose 2.1 per cent to US$33.52. Disney added 1.2 per cent to US$107.43.

Sky Plc shares gained 3.1 per cent as investors hoped Fox would increase its offer since the company could afford to pay more due to the bidding war. The European pay-TV group, 39 per cent owned by Fox, is also being pursued by Comcast.

Major sports and news assets including Fox News, Fox Business Network and Fox Sports are not part of the businesses being sold and would be spun off into a separate company.

Following the deal, Fox shareholders would own about 19 per cent of the combined company, Disney Chief Financial Officer Christine McCarthy said on a conference call.

Disney no longer expects to complete the US$20 billion share repurchase announced in December, McCarthy said.

Fox said it will postpone a special shareholders meeting in order to provide stockholders with an opportunity to evaluate Disney's amended offer.