WASHINGTON — The Justice Department’s approval of The Walt Disney Co.’s purchase of Fox assets is quicker than Wall Street analysts and others were expecting — and it certainly has implications as Comcast weighs whether to counter its counter offer.
UBS’s Media and Pay TV analysts called it a “FastPass approval,” while MoffettNathanson wrote that “it seems to us that the pressure is now back on Comcast to come in with a more significant bid above Disney’s $38 per share offer to help sway the 21st Century Fox Board to reject the bird in the hand regulatory clearance.”
Comcast’s proposed merger with NBCUniversal was unveiled in late 2009, but took more than a year to secure a green light from the DOJ and the FCC. AT&T’s acquisition of Time Warner, first proposed in October 2016, took more than 18 months as the government challenged it in court.
So how did the Disney-Fox merger come together so quickly?
When Disney and Fox announced their deal in December, the expectation was that it would take 12 to 18 months to close, though UBS’s John Hodulik and other analysts wrote that they believed that the Disney-Fox deal could close before the end of the year.
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Disney’s ability to secure approval now, however, six months after announcing the merger, could be critical as it faces another potential Comcast offer. Fox must schedule a shareholder vote to move forward with a Disney bid.
“I could see how Disney wanted to cut a deal quickly if delay meant increasing the prospects of a Comcast counter,” Hal Singer, economist at George Washington University’s Institute of Public Policy, wrote in an email.
In announcing the approval, the Justice Department noted that “to streamline agency clearance, Disney agreed to divest the 22 RSNs rather than continue with the Antitrust Division’s ongoing merger investigation.” In other words, it became clear to Disney what the Justice Department’s major concern was with the deal: Disney’s purchase of the RSNs would harm competition for sports programming in those local markets. Rather than try to challenge that contention or negotiate some kind of conditions, a process that could have taken many more months, Disney agreed to the type of structural remedy favored by the DOJ under antitrust chief Makan Delrahim.
Delrahim seemed to signal that approval may be imminent several weeks ago, when he told a conference on June 7 that the companies “had good advice and carved out surgically what a transaction that might be doable.”
He said, “They didn’t acquire or propose to acquire Fox Sports One and Two. They didn’t acquire Fox Broadcasting and say, ‘We’ll combine this with ABC broadcasting, and don’t worry about it. We will have an arbitrator decide if prices go up.'”
Disney and Fox also did not have to secure the FCC’s approval, given that there were no license transfers that would trigger a review by regulators there. Doing so would have opened up the transaction to a new level of scrutiny and attention, as the FCC determines if a merger is in the public interest and typically puts a merger on the docket for public comment. Congress does not vote on mergers, but typically holds hearings on major media transactions. None was held for the Disney-Fox deal. For his part, President Trump appeared to give the deal his blessing on the day the transaction was announced.
Larry Downes, senior industry and innovation fellow at the Georgetown Center for Business and Public Policy, said that he was “very surprised” by the approval.
“During a six-month period when the agency was pursuing a novel and ultimately failed theory of expanding antitrust scrutiny to vertical mergers in a two-year review of AT&T-Time Warner, there was apparently no analysis about the most obvious horizontal problem in the Disney-Fox deal: the studios and their content,” Downes said in an e-mail.
He noted that Disney and Fox are No. 1 and No. 2 at the box office, “with some of the most valuable intellectual property assets going forward for new services including over-the-top video and direct-to-consumer content. Disney has already announced plans to offer its own [over-the-top] service and has already removed content from competing platforms including Netflix — that is, actual foreclosure. And with a controlling interest in Hulu (again, no comment from the DOJ), its stated intention to withhold will be all the more effective.”
Downes indicated he is not saying the deal shouldn’t be approved, “but to approve it without any comment on the risks of concentration or any mitigation or protections for others in the supply chain comes as quite a shock.”
At the time that the Disney-Fox deal was announced, some antitrust experts predicted that while the Justice Department tried to block AT&T-Time Warner, it appeared to be “more sanguine about combinations involving different content assets,” in the words of Mark Ostrau of Fenwick & West. Box office market shares tends to fluctuate, and Disney could point to Amazon and Netflix as content rivals, he noted. The National Association of Theater Owners did not challenge the merger.
The next step in the Justice Department’s process is for the proposed settlement to be entered into the Federal Register. Then, anyone can file comments on the transaction during a 60-day comment period. It’ll be up to a federal judge to decide whether to sign off on the settlement.
There also will be the ongoing question of what happens with Comcast — whether it will top Disney’s offer and its case would likely get the government’s green light as well.
On Wednesday, the focus of many competition experts, Capitol Hill lawmakers, and public interest groups was not on Fox-Disney but on another proposed transaction, the Sprint-T Mobile merger, which went before a Senate Judiciary antitrust committee for a hearing.
Diana Moss, president of the American Antitrust Institute, declined to comment on the speed of the DOJ’s approval of the Disney-Fox merger, but she still has concerns about what happens with the settlement. She said that “it is telling of competitive consequences of the merger that the DOJ required a complete spinoff of the Fox RSNs. We shall see if that remedy fully restores competition.”
She added, “Those are highly specialized and important assets and given the few rivals in the RSN markets, it will be a heavy lift to ensure a buyer reinjects the lost competition.”