Comcast on Wednesday made the move everybody had been expecting, as the cable giant formalized its bid for certain 21st Century Fox assets, topping Disney’s offer with a $65 billion all-cash deal that provides for a $4.025 billion breakup fee if the transaction doesn’t secure regulatory approvals.
As expected, the bid came one day after a federal judge approved AT&T’s $85 billion acquisition of Time Warner without imposing conditions, rejecting the Department of Justice’s argument that the vertical merger would hurt pay TV competition and increase costs for consumers. This likely signaled a greenlight for Comcast, who was confident enough to match Disney’s $2.5 billion breakup fee and include an additional $1.5 billion in reimbursements to Fox to end the deal with Disney, in what it called the “highly unlikely scenario” that the deal doesn’t pass regulatory approval.
“Life before the AT&T approval was a world in which Comcast, still chastened by their failed attempt to acquire Time Warner Cable, was boxed in. Comcast’s prior refusal to pay a breakup fee for Fox suggested that even they understood that the risk of the deal failing was simply too great a risk to take,” MoffettNathanson analyst Craig Moffett wrote in a Thursday blog post. “Fox was easily able to say no. Life after the AT&T-Time Warner approval is a brave new world where, well, anything goes (OK, not anything… but almost anything).”
Comcast’s offer of $35 per share is about 19 percent higher than Disney’s bid of $28 per share ($52.4 billion) and is likely to set off a bidding war, with Moffett noting Comcast’s offer “seems more like an opening salvo,” than “a best and final bid.”
In addition to the breakup fee, Comcast also committed to divest, if needed, the same assets as Disney has promised, including any of Fox’s 22 regional sports networks and up to an additional $500 million of EBITDA.
The proposed deal has been unanimously approved by Comcast’s board and no shareholder vote is required for the transaction.
Comcast said it has made its Hart-Scott-Rodino antitrust filing to start the DOJ’s review and expects the process to happen in the same timeframe as Disney’s review.
Fox on Wednesday (June 13) confirmed receipt of Comcast’s unsolicited offer and said the board will “carefully review and consider the Comcast proposal.” Fox said it has not yet decided, in light of Comcast’s bid, whether it will postpone or cancel the shareholders meeting to vote on the Disney deal, which is slated for July 10.
In addition to Fox’s RSNs, other assets on the table include its TV and movie production studio, cable channels FX, FXX and National Geographic, and a 30 percent stake in Hulu, as well as a 39 percent stake in British pay TV giant Sky. Comcast is currently competing with Fox to purchase the remaining 61 percent of Sky.
If Comcast manages to snag the Fox assets it would expand the company’s international footprint.
“It really makes Comcast/NBC a significantly more global company,” BTIG analyst Richard Greenfield noted in an earlier interview with Cheddar, saying that given the pressures and slowdown facing the U.S. cable business, Comcast is seeking to globally diversify through the deal.
Some industry groups think Comcast/NBCUniversal already has too much influence, and following the AT&T-Time Warner decision, the American Cable Association encouraged the DOJ and FCC to continue to “rigorously review existing and proposed vertical combinations.
“Most importantly, the DOJ and FCC need to examine the harms that have flowed and will continue to flow from the Comcast-NBCU combination, which has a larger share of the markets it serves and controls more essential programming in these markets, including regional sports networks and local broadcast stations,” said ACA in a statement.
“The agencies also should prevent Comcast-NBCU from acquiring any additional firms, such as Fox, which would only increase its ability to harm consumer welfare,” the group added.