One is the consummate manager and operator. One is the scion of a media pioneer who has taken the family business to impressive heights through his drive and ambition.
Bob Iger and Brian Roberts are two very different people and leaders, with a history of prickly relations, who want the same thing: spoils of Rupert Murdoch’s empire. The chairmen-CEOs of Disney and Comcast are on a collision course now that Comcast has formally unveiled its $65 billion cash offer for most of 21st Century Fox, countering the $52.4 billion all-stock pact Disney reached with Fox in December.
Disney battled back Wednesday morning with a significantly higher offer that includes a mix of cash and stock for 21st Century Fox shareholders, bringing the value of the pact to $71.3 billion, or $38 a share. The Fox board left itself wiggle room to consider a new offer from Comcast or another contender, but Fox in its announcement noted specifically that the board has “not concluded that the unsolicited proposal it received on June 13, 2018 from Comcast could reasonably be expected to result in a ‘Company Superior Proposal’ under the Disney Merger Agreement.”
Fox has also postponed the previously planned July 10 vote by shareholders on the Disney transaction, in order to provide more time for evaluating the new Disney offer, and the potential for more to come from Comcast. Analysts have speculated that the bidding could reach as high as $42-$43 a share, or about $80 billion.
Disney’s bid had previously been an all-stock transaction that would have offered tax benefits to Fox shareholders, particularly its controlling shareholders in the Murdoch clan. Disney’s revised offer gives Fox shareholders the option of receiving cash or stock.
“You have two highly motivated buyers,” says a top executive who asked not to be identified to protect his relationships. “Whoever bids the most will win.”
Roberts so far has shown that he will not take “no” for for an answer. In the six months since Fox’s board of directors opted to take Disney’s offer, Comcast has fielded a separate bid to buy out Sky, the European satellite provider that is one of the most attractive assets up for grabs with 21st Century Fox. And on June 13, after dropping hints for more than a month, Comcast threw down the $65 billion gauntlet with its “superior proposal.”
The battle between Disney and Comcast has captivated the industry because it’s a rare public brawl over a marquee name — the most high-profile Hollywood M&A tussle since Sumner Redstone and Barry Diller went at it over Paramount Pictures in 1993.
But at this time of momentous transition for media and entertainment, the pursuit of Fox comes with much higher stakes and is also the most tangible evidence of how two titans see the marketplace shaping up in the future. The fight underscores the mad dash of industry giants to scale up content operations and become more global in distribution lest they be overtaken by the direct-to-consumer insurgency led by Netflix, Amazon, Facebook, Apple, et al.
“Whoever acquires Fox consolidates their position to join the club of global video entertainment companies. Whoever loses Fox not only doesn’t consolidate the power, but now has to compete against the one who does, and essentially becomes resigned to be a niche player (or worse),” Sanford Bernstein analyst Todd Juenger wrote of Comcast’s rationale for its aggressive pursuit of Fox.
Reps for Disney and Comcast declined to comment for this story.
Longtime media analyst Michael Nathanson of MoffettNathanson Research tells Variety the dueling over Fox will be intense because it is a unique collection of assets, combining a strong film and TV library; cable channels that are content engines; and Fox’s international reach with Sky (of which Fox owns 39%, with hopes of buying out the rest), the Star India platform and Fox, FX and National Geographic-branded channels around the world. (On June 19, Disney stepped up its commitment to helping Fox clear more hurdles to its acquisition of the remainder of Sky by vowing to operate the Sky News channel as a separate entity with a 15-year funding pledge.)
In fact, the Fox assets on the block are such a rare commodity that Nathanson doesn’t see the loser in the Fox battle shifting gears to go after other content-rich companies such as CBS Corp., Sony Pictures Entertainment or Lionsgate. “After this bidding war ends, I’m not sure Disney or Comcast will look for a plan B strategy,” Nathanson says. “These assets are so special.”
It takes a potent mix of ambition, ego and strategic vision to drive any large-scale M&A transaction. The victor in the chase for the Fox assets will be determined in large part by the motivations of Roberts and Iger — notwithstanding the possibility of another bidder emerging. As the stars of this win-or-lose corporate drama, Roberts and Iger have become name-brand moguls, the Sumner Redstones and Rupert Murdochs of the modern era. While both Roberts and Iger are more polished and buttoned up than their older mogul counterparts, all share an unrelenting thirst to win. Roberts is a former All-American in squash who competed as an athlete in Israel’s Maccabiah Games. Iger is known for starting his day with a 4:30 a.m. workout.
Roberts is to the manor born. He grew up in a Philadelphia Brahmin family with the expectation that he would succeed his father, Comcast founder Ralph Roberts, as head of the family business. He strung cable wire and sold Comcast subscriptions door-to-door as a youth to gain a street-level understanding of the company. He earned an MBA from The Wharton School and was named president of Comcast in 1990 at age 30. The growth of Comcast into a world-class media conglomerate on Roberts’ watch (he took over as CEO in 2002) is a source of pride for the family that made its initial fortune selling fashion accessories.
Iger, by contrast, grew up on Long Island and attended Ithaca College in upstate New York, where he majored in radio and television. He spent a few months after college working as a TV weatherman in snowy Ithaca before heading to New York City, where he got an entry-level job at ABC. At ABC he was taken under wing by the legendary Roone Arledge and rose through the ranks as a sports programming executive.
“Whoever loses Fox not only doesn’t consolidate the power, but now has to compete against the one who does, and essentially becomes resigned to be a niche player (or worse)”
Sanford Bernstein analyst Todd Juenger
Sources who have worked with both CEOs say the most significant difference between Iger and Roberts is that Iger at heart is an operator. He excels at the strategic thinking required to lead a business and the minutiae of executing on the details. Keeping his eye on the horizon, Iger has skillfully pursued acquisitions that brought golden IP assets to the Disney umbrella: Pixar (bought for $7.4 billion in 2006), Marvel ($4.24 billion in 2009), Lucasfilm ($4 billion in 2012). Disney in the past dozen years has armed itself with franchises just as the pay-TV marketplace is going through gyrations in favor of lower-cost subscription streaming services over the pricier traditional cable bundle. Disney is looking to launch its spin on a subscription entertainment streaming bundle by the end of next year.
Those who know Iger say that the motivating reason behind his agreement to extend his contract through the end of 2021 was that he was determined to oversee the Fox acquisition and position Disney for the next century. He knows the Fox deal would be part of his legacy as his retirement looms.
Iger is routinely described as “disciplined.” Executives who have worked with him express doubt that he would overpay in a bidding war with Comcast. Although he’s out on a limb after selling shareholders and investors on the merits of the 21st Century Fox assets, sources who know Iger say he’s not likely to wage a long public fight. His previous acquisitions were small by comparison with the proposed Fox purchase.
Roberts, on the other hand, has more room to maneuver in the bidding so long as Wall Street more or less agrees. He has a tight grip on Comcast through preferred shares that give him control of about one-third of the voting power in the $156 billion cable colossus that is also home to NBCUniversal.
The all-cash bid for the 21st Century Fox assets comprises the 20th Century Fox studio, FX Networks, National Geographic Partners, stakes in Hulu and Sky, and control of the Star India platform. Fox’s wide international footprint would bump Comcast’s international revenue from about 9% of total revenue to roughly 27%. Comcast estimates that the Fox assets up for sale derive 70% of their total revenue from outside the U.S. To bring that under the Comcast/NBCU umbrella would be a welcome diversification. At its core, Comcast is a regional broadband provider that services about 30% of U.S. TV households. The feeling is that it has to grow more international to stay a contender as a media and entertainment heavyweight.
“We firmly believe that the truly great media companies of the next century will be large, integrated entities with multiple growth engines across a wide swath of the global entertainment industry,” Roberts told analysts. “We believe our proposed acquisition of Fox would not only enhance our domestic positions in distribution and content but would take us to global reach and additional growth in these businesses.”
As an executive, Roberts responds to the thrill of the hunt. He loves crunching the numbers on acquisitions, wooing the sellers and lining up the financing — the details that make a deal happen, or not. Comcast built up its cable platform to No. 1 status through acquisitions in the 1990s and early 2000s, and then Roberts turned the company’s attention to content. He and then-Comcast president Steve Burke got off to an inauspicious start in 2004 with a bold bid for Disney that was eventually dropped in the face of hostility from Disney and Wall Street. Five years later, Comcast cut a friendly deal with General Electric to buy NBCUniversal. Over the past six years, with Comcast’s investment in everything from Universal Pictures to NBC to Telemundo, NBCUniversal’s earnings have grown by double digits, from $3.8 billion in 2011 to $8.2 billion in 2017.
|Those who know Bob Iger say he’s determined to see the Fox acquisition through and position Disney for the next century.
Roberts relies on top lieutenants including now-NBCUniversal CEO Burke and Comcast Cable president-CEO David Watkins to operate his businesses. He focuses on big-picture strategy and opportunities. He’s long been closely involved with the refinement of Comcast’s X1 digital platform for subscribers, which remains the state of the art in cable.
“Brian’s not going to sit through a meeting about budgeting and planning for a division. His eyes will glaze over,” says a source who has worked with Roberts. “He likes to buy things. He is tantalized by the chase.”
At a 19% hike over Disney’s original offer, Comcast’s cash offer for Fox is such a premium that the 21st Century Fox board of directors has no choice but to give strong consideration to the new bid, prompting Disney to significantly hike its offer.
Roberts and other Comcast chiefs, notably CFO Michael Cavanagh, were in the trenches with Disney last November and December, but the offer was rejected in favor of Disney’s in part because of concerns that a combination with Comcast would never pass muster with regulators in Washington. Fox pointed out that its own legal filings about Comcast in recent regulatory proceedings would come back to haunt the two companies if they sought to merge. Just before Disney and Fox sealed the deal on Dec. 14, Comcast put out a statement saying it had dropped out of talks to acquire the assets after failing to get the “level of engagement” it had hoped.
The company quickly fueled whispers that it was not done bidding for the Fox assets after the dust settled on the Disney announcement. But the Justice Department’s antitrust lawsuit to block the AT&T and Time Warner merger gave pause. Once that trial began in March, as the limits of the government’s case became clear in the D.C. courtroom, Comcast began stepping up its preparation to go all out with a second run at Disney. Disney’s Securities and Exchange Commission filing in April that offered the negotiations narrative of the deal amounted to a list of everything the Fox board didn’t like about Comcast’s first offer. This time, Roberts and Co. came back with a slightly higher all-cash offer and a promise to match Disney’s terms on regulatory and breakup fees and divestiture options. That includes matching Disney’s $2.5 billion breakup fee if regulatory issues block the deal. Comcast also pledged to reimburse Fox for the $1.25 billion breakup fee it will owe Disney if that deal is scrapped.
One big question mark for Comcast is the debt load the company will be layering on to finance the cash bid. Laying out cash of $65 billion (or more) would take its debt level to more than four times earnings, a far higher debt-to-earnings ratio than the mid-2s, as it has run in the recent past. That could compromise its credit rating and make it costlier for the company to arrange financing.
Comcast executives positioned the willingness to load up some debt as a sign of confidence in the earnings power of the enlarged company. Roberts and Cavanagh promised to chop the debt load down to previous levels within a few years of the Fox deal’s closing. Comcast is projecting the combined Comcast, 21st Century Fox assets and Sky will generate $130 billion in annual revenue and about $40 billion in earnings before interest, taxes, depreciation and amortization. The plan is to squeeze $2 billion cost savings out of the combined companies over a few years while paying down the debt load by $500 million a year or more with the estimated $20 billion in cash flow generated by the expanded company.
“While we weren’t out looking for this transaction, it presents a rare strategic moment,” Cavanagh told investors after announcing the new Fox offer on June 13. “And given the soundness of the financial structure [in place], I’m very glad we are seriously pursuing the opportunity.”
Comcast execs were angered last time around that their bid with a higher financial value was rejected for Disney’s all-stock transaction. They pointed out that the all-stock structure had tax benefits for the Murdoch clan, as Fox’s biggest shareholders, that didn’t matter as much to other shareholders. But now Comcast came back with a premium that exceeds the tax savings the family would realize in an all-stock deal.
A Hollywood executive who knows the players well says the importance of relationships in these types of negotiations cannot be overstated. Comcast’s reputation for using its size to strike hard bargains in carriage deals with cable programmers and TV stations is well known. “They really leave you bloody,” says the executive. “That leaves a bad taste in people’s mouths.”
|Brian Roberts and then-Comcast president Steve Burke made a bid for Disney in 2004 that was dropped after being met with hostility from Disney and Wall Street.
The friction between Iger and Roberts stems in part from Comcast’s unsolicited bid for Disney in 2004. Roberts and Burke were publicly critical of Disney’s management of ABC when Iger had oversight of the network in his role as Disney president. Burke called it a “weak, fourth-place network” in an interview with The New York Times and made other critical comments about ABC’s leadership. The remarks landed while Iger was in the midst of his long audition to replace Michael Eisner as Disney CEO.
Murdoch and Iger have traveled in the same circles for years and had a friendship that predated the acquisition talks. But until Comcast took control of NBCUniversal in 2011, Murdoch and Fox’s interactions with Comcast were mostly in the form of tense affiliate-fee renewal deals with enormous significance for Fox’s bottom line.
Now Murdoch is awaiting the outcome of a bidding war between the two largest U.S. companies in media and entertainment. Sources say over the past few months he has become less personally attached to the Disney deal and more focused on driving the highest price for his jewels. It’s shaping up as quite a final bow on the deal stage for the visionary mogul who changed the face of American television with the launch of Fox Broadcasting Co. in 1986.
Murdoch burnished his image with big deals and big swings even before he took control of 20th Century Fox in the mid-1980s, such as his first run at what was then Warner Communications in 1983. That offer was rebuffed, as was a bid for Time Warner in 2014 when Fox made an unsolicited $80 billion offer that effectively hung a “For Sale” sign on Time Warner. For the lion in winter, Murdoch’s greatest surprise has been to turn the tables and make rivals fight for control of his company.
Roberts and Iger may not be as outwardly colorful as Murdoch was in his prime, but the three men are cut from the same mogul cloth. The final result of the bidding for Fox is not likely to be the end of the jousting between Disney and Comcast.
“I don’t think either company needs to buy Fox to survive,” Nathanson says. “It’s about long-term advantage and scale. The one who doesn’t get it will probably worry more about whether they did need it more than the other guy.”
Brian Steinberg contributed to this story.