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Comcast’s Offer for Fox Could Spur an Intense Bidding War

Media companies are grappling with massive, fast-growing competitors like Apple, Amazon and Netflix. The counter-strategy these days seems to hinge on finding new partners, and Comcast is making an outlandish move to keep one potential ally from running into the arms of another.

With its audacious May 23 maneuver to pluck valuable pieces of 21st Century Fox out of the hands of its confirmed suitor, the Walt Disney Co., the Philadelphia media giant is making a bold play for a chunk of assets that might help it grow and compete more fiercely in a rapidly shifting industry.

Disney and Fox agreed last year to a $52.4 billion deal that would send Fox’s studios and cable networks, as well as its stake in European broadcaster Sky and a passel of regional sports networks, to Disney. It’s a pact that would transform the already dominant Disney into a veritable juggernaut — augmenting its Marvel movie properties, bolstering its ESPN sports-cable empire and giving it significantly more heft in the content game. Comcast said it would make an all-cash bid for the Fox assets “at a premium to the value of the current all-share offer from Disney.”

“It looks like a bidding war is going to erupt,” said Tuna Amobi, senior equity analyst at CFRA Research. “The ball is in Disney’s court to figure out what it does next, including possibly raising its offer.”

Walt Disney did not respond to a query seeking comment, while Comcast and Fox declined to make executives available for comment.

The Philadelphia company’s move seems brazen — after all, Fox rejected an earlier Comcast overture before deciding to strike a deal with Disney — but it’s also strategic. Comcast executives knew 21st Century Fox was getting ready to schedule a shareholder vote, according to a person familiar with the matter, and they wanted to get investors’ attention. The new offer is essentially a giant neon sign with flashing words: Don’t be so quick to vote aye.

Comcast never put a formal price tag on its offer but said the structure and terms of its bid for the 21st Century Fox assets — including regulatory-risk provisions and the termination fee it would be required to pay — would be “at least as favorable to Fox shareholders as the Disney offer.” Under the terms of Disney’s proposed deal for Fox, the Murdoch family-controlled company would be on the hook to pay a breakup fee of $1.52 billion if Fox pulls out of the pact for any reason not related to a regulatory block of the transaction.

Wall Street expects Disney to raise its bid. The multibillion-dollar question: How much is Comcast ultimately willing to shell out? The cable and media giant didn’t tip its hand, but Wall Street observers say Comcast would be looking to pay at least 15% above Disney’s current offer — meaning the price for the Fox assets is likely to be above $60 billion.

Disney “will throw cash on the table to match Comcast’s offer,” said Michael Nathanson, principal analyst at MoffettNathanson, adding that the media conglomerate is relatively underleveraged in terms of debt. “I don’t think there’s a break point for these guys to walk away.”

So far, Rupert Murdoch’s preference has been to merge some of the crown jewels of his media empire, including 20th Century Fox, with Disney. “He wants to participate in the upside of Disney’s strategy,” said Amobi. “Murdoch has looked at the landscape and seen what Disney and Bob Iger are trying to do, and he believes in it.”

But money talks. By making its case directly to 21st Century Fox shareholders, Comcast is hoping it can eliminate the chance of a veto by the Fox board — or the Murdoch family. Comcast’s proposal last fall was rejected by the Fox board. Now “the decision goes from what the Murdochs want to what the greater shareholders want,” said Nathanson.

Comcast has never been afraid to bid big. In 2004, it launched a hostile bid for Disney, only to be rebuffed. Undaunted, the company bided its time, then snatched up a controlling stake in NBCUniversal in 2011 and the rest of it in 2013 — all for cash and assets totaling more than $30 billion. Despite the heft of that acquisition, Comcast felt it had room to grow in 2014 when it made an effort to pick up Time Warner Cable. The Department of Justice scotched the deal by making known it planned to file an antitrust lawsuit.

Comcast is putting an aggressive foot forward at a time when many traditional media companies are trying to avoid being stomped out of existence by the digital competition. It shouldn’t be lost on anyone that within hours of Comcast making its new offer for the Fox assets, Netflix’s market capitalization surged past Comcast’s.

Comcast and its contemporaries — Walt Disney, Time Warner, 21st Century Fox, CBS, Viacom and Discovery — can control the quality of the content they produce and even the service they offer, but they have little to say about the manner in which consumers watch it. Their viewers are moving away from movie theaters and living rooms and toward digital devices that allow them to determine how they experience programming.

Many big media companies, to keep audiences under their collective tent, have in recent months focused on consolidation. By gaining sway over more content, the thinking goes, the companies can continue to provide the mass viewership that’s so important when it comes to leveraging fees from advertisers, syndicators and affiliates.

There’s good reason Comcast wants to make its own play for Fox assets. Networks such as FX and Nat Geo would bolster NBCUniversal’s cable lineup, which has been winnowed down in recent years as NBCU CEO Steve Burke has culled underperforming channels like Chiller, Esquire and Cloo; Fox’s regional sports networks would augment NBC Sports and NBCSN; the content-rich 20th Century Fox studio would broaden NBCU’s Universal and Focus studio holdings; and the stake in Sky would boost Comcast’s visions of making NBC News more of an international player after NBCU purchased a 25% stake last year in European news provider Euronews.

The Fox assets would help Comcast at a time when its video customer base is in flux. In 2016, for example, Comcast gained 161,000 video customers. But last year, it lost 151,000. And it lost 96,000 of them in the recent first quarter.

Of course, Disney has just as many reasons to keep the deal intact. The Fox pact would feed Disney’s content-production pipelines as the company turns to the launch of a direct-to-consumer service that will harness its Lucasfilm, Marvel and Disney properties. It would buoy ESPN and surround it with an array of regional sports nets as the sports-media giant bows its own OTT offering, ESPN+, and grapples with subscriber declines. And it would extend Disney’s cable holdings — largely centered on ABC and a group of outlets geared to kids — with new offerings in premium scripted fare and documentary programming.

Comcast is likely waiting for a decision in the AT&T-Time Warner antitrust trial before putting forth a formal offer. A decision in that case, in which the Department of Justice has argued that AT&T’s takeover of Time Warner would hurt consumers and industry competitors, is scheduled to be handed down June 12. If the judge issues a ruling favorable to an AT&T-Time Warner merger, Comcast’s bid for the 21st Century Fox assets would be seen as facing less risk of regulatory roadblocks.

Fox has nothing to gain by commenting on the matter at present. Any statement could upset Disney, its current partner, or turn away Comcast, whose efforts may serve to jack up the price the Murdochs may ultimately command.

Little surprise, then, that Lachlan Murdoch, who was recently named to lead the so-called New Fox that will remain once the giant deal gets done, has played things close to the vest. Fox is “committed to our agreement with Disney and [we] are working through the conditions to bring it to a closing,” he recently told investors during a call to discuss earnings. “In addition, our directors, though, of course, are aware of their fiduciary duties on behalf of all shareholders.” Comcast isn’t going to stop until the Murdochs say no or Disney makes it impossible for its rival to continue.

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