Comcast and 21st Century Fox in Focus After AT&T-Time Warner Approval

https://www.nytimes.com/2018/06/12/business/media/comcast-fox-media-deal-att.html

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[UPDATE: Comcast has announced a $65 billion all cash offer for most of 21st Century Fox. Read the latest on the bid here.]

The battle for the future of media has begun.

A judge’s approval on Tuesday of the $85.4 billion AT&T-Time Warner deal is sure to touch off a series of mergers as once-powerful news and entertainment companies, built for an era when cable was king, position themselves to compete against the likes of Netflix, Amazon and YouTube.

How quickly are things changing? Netflix recently surpassed Disney to become the most valuable media company at $158 billion.

That helps set the stakes for the pending clash between Comcast and The Walt Disney Company as each seeks to own the bulk of 21st Century Fox.

In December, Disney struck a $52.4 billion, all-stock deal to buy much of 21st Century Fox’s assets. Now, Comcast plans to announce its own offer for 21st Century Fox’s assets as early as Wednesday, according to two people familiar with the matter who spoke on condition of anonymity to discuss company business. Shares of 21st Century Fox jumped more than 7 percentage points in early trading Wednesday. Comcast’s stock price fell about 3 percent, while Disney gained about 1 percent.

The contest will pit Brian L. Roberts, the chief executive of Comcast, against Disney’s Robert A. Iger in what could be a fierce bidding war for a significant chunk of Rupert Murdoch’s media empire.

[Read about the AT&T-Time Warner ruling here.]

Comcast, which already owns NBCUniversal, has put together a bid of slightly more than $60 billion in cash and contractual assurances that Fox would be paid what is known as a reverse breakup fee — perhaps as much as $2.5 billion — in the event a transaction is blocked by the government, the people said. But any regulatory concerns may be allayed by the straightforward approval of the AT&T-Time Warner deal. Judge Richard J. Leon of the United States District Court in Washington said the agreement could go through without either company divesting any assets.

It is hard to overstate how closely Comcast was monitoring the situation. Executives at NBCUniversal had dispatched people to wait in the courtroom to hear the verdict. Mr. Roberts waited at his executive offices at Comcast’s headquarters in Philadelphia, tuned to CNBC and keeping an eye on Twitter. According to a person familiar with the matter, Comcast’s board met Tuesday evening to discuss its revamped bid for Fox, which rebuffed an overture last year.

[The AT&T-Time Warner case showed the need to reboot antitrust law, our columnist writes.]

In November, Mr. Roberts traveled to Mr. Murdoch’s estate in the Bel-Air neighborhood of Los Angeles, according to two people familiar with the meeting who spoke on condition of anonymity because it has not been made public. There, over glasses of wine produced from vineyards on the estate, Mr. Roberts broached the possibility of Mr. Murdoch making a deal with Comcast. Mr. Murdoch explained that talks with Disney had already begun, but that the companies were still $4 billion apart on price.

Mr. Murdoch said he had wanted $56 billion, which Mr. Roberts then offered, according to the two people familiar with the meeting. Mr. Murdoch said he would take it to the board.

The all-stock offer, which ultimately was worth about $60 billion, was rebuffed by Fox, in part because of regulatory concerns and the lack of a reverse breakup fee. The agreement with Disney came not long after.

The businesses that Mr. Murdoch has agreed to sell include the 20th Century Fox film and TV studios, almost two dozen regional sports networks like the Yankees’ YES channel, a lineup of cable networks that includes FX and a 30 percent ownership stake in the streaming service Hulu.

A deal would also include Fox’s 39 percent ownership stake in the European pay TV operator Sky. Comcast has already made an offer to buy the other 61 percent of Sky in a separate deal. (The Fox News cable network, the Fox broadcast stations, the Fox Business Network and the sports network FS1 would not be part of a transaction.)

Mr. Murdoch sees Disney’s stock as ultimately more valuable than Comcast’s, according to two people familiar with his thinking who spoke on condition of anonymity because the deal was still in process. Since Disney’s bid is in stock, Mr. Murdoch is banking on a rise in the company’s value over time. Comcast’s all-cash offer would also mean an immediate tax hit.

Still, Mr. Murdoch’s son James, the chief of 21st Century Fox, told analysts in May that the company’s leaders would consider all legitimate proposals. “The directors are very aware of their responsibilities,” he said. The younger Mr. Murdoch will leave the company if the Disney deal were completed.

Each man vying for a piece of Fox is an accomplished dealmaker.

Mr. Roberts spends a great deal of time analyzing merger possibilities and is always on the hunt. One of Comcast’s most successful transactions was for control of NBCUniversal in 2011. In 2014, he bid for Time Warner Cable but walked away after the Justice Department said it was leaning toward blocking the deal.

As the head of Disney, Mr. Iger has completed several major acquisitions, including the purchases of Pixar Studios, Lucasfilm and Marvel Entertainment, though all were private transactions that did not require approval of public shareholders.

The Fox board has scheduled a shareholder meeting for July 10 to vote on the Disney offer, but that meeting could be moved back if Comcast makes its bid, as it is expected to do as a result of Tuesday’s ruling.

AT&T’s victory shows the way forward for the media industry, which has grappled with a sharp slowdown in the past few years. The decline in pay TV subscribers has blunted businesses once thought to be invincible. ESPN, owned by Disney, has seen a significant drop in viewership as younger viewers spend more time on platforms like Facebook, Instagram and YouTube.

Mergers will allow companies to compete for costlier rights to professional sports, seen as perhaps the only way to keep viewers from cutting the cable cord, and to build out their streaming services.

The pay TV industry may not be dying, but it is “slowly grinding down,” said Michael Nathanson, a founder of research firm MoffettNathanson.

Besides the coming fight over 21st Century Fox, CBS and Viacom are locked in a will-they or won’t-they situation, hinging on one of the bitterest boardroom fights in recent memory. Discovery’s $11.9 billion purchase of Scripps last year seems modest by comparison, since both of those companies revealed weak performance at the time of the merger.

Mr. Nathanson said he thought Disney will ultimately succeed in its pursuit of Fox because it has less debt than Comcast.

“But at some point, if the bid is too high from Comcast,” he said, “then Disney will have to walk away.”