Twenty-First Century Fox (FOXA) agreed to new merger terms
with Disney (DIS) for its non-core assets this morning. The new deal
comes after Comcast (CMSA) offered Fox $35/share in cash (~$65 bln) for
the same assets last week. Fox rejected Comcast's original offer last Summer.
As anticipated, the bidding war for the Fox assets has picked up. Clearly, the stakes are very high in this media showdown.
The original merger agreement Disney and Fox agreed to six months ago was $52.4 bln in all stock (0.2745 Disney shares per FOXA share).
The new deal amounts to $71.3 bln in cash and stock, or $38 per FOXA share. Disney is expected to pay a total of $35.7 bln in cash and issue ~343 mln new shares to 21st Century Fox shareholders, representing about a 19% stake in Disney on a pro forma basis.
The fact that Fox has already agreed to Disney's new offer does not bode well for Comcast's chances of owning the assets. Fox's Rupert Murdoch reportedly wants to avoid a drawn out regulatory process to get a deal closed.
On Disney's conference call this morning, Bob Iger made the case for a much easier regulatory path compared to Comcast. For one, Disney has a six-month head start with regulators. He noted that Comcast has a dominant market position in not only cable distribution but also as an internet service provider. Plus, Comcast's NBCU owns a major network and cable channels. He noted that judge Leon's verdict in favor of AT&T last week did include cautious commentary regarding vertical mergers that did not apply to AT&T.
Despite this, Comcast is not expected to give up just yet. Fox delayed its shareholder meeting originally planned for July 10 to give shareholders more time to consider its options. In the meantime, Comcast is expected to sweeten its offer.
As a reminder, the businesses to be acquired by Disney include 21st Century Fox's film production businesses, including Twentieth Century Fox, Fox Searchlight Pictures and Fox 2000 Pictures. This will also include Fox's television creative units, Twentieth Century Fox Television, FX Productions, Fox21, FX Networks, National Geographic Partners, Fox Sports Regional Networks, Fox Networks Group International, Star India, and Fox's interests in Hulu, Sky plc, and Tata Sky.
The acquisition will occur immediately after the spin-off by 21st Century Fox of the Fox Broadcasting network and stations, Fox News Channel, Fox Business Network, FS1, FS2, and Big Ten Network into a newly listed company referred to as New Fox. If 21st Century Fox completes its acquisition of the 61% of Sky (SKYAY) it doesn't already own prior to closing of the Disney acquisition, Disney would assume full ownership of Sky, including the assumption of its outstanding debt, upon closing.
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