When Walt Disney (NYSE:DIS) announced in December that it had made a deal to purchase most of Twenty-First Century Fox (NASDAQ:FOX) (NASDAQ:FOXA), the rumor mill went into overdrive almost immediately. While Comcast (NASDAQ:CMCSA) was also known to have been in deal negotiations, it was Disney's offer that won out.
The House of Mouse agreed to a deal valued at $52.4 billion, after the spinoff of certain Fox news and sports networks. The merger seemed like a natural fit, given that the assets involved align well with Disney's movie studios, television stations, cable properties, and streaming ambitions.
That didn't sit well with Comcast -- which allegedly had made a higher offer than Disney -- and now, the cable giant is striking back.
Confirming the rumors
After much speculation that it might again attempt to play the spoiler, Comcast finally released a statement detailing its intentions:
Comcast confirms that it is considering, and is in advanced stages of preparing, an offer for the businesses that Fox has agreed to sell to Disney ... Any offer for Fox would be all-cash and at a premium to the value of the current all-share offer from Disney ... [and] would be at least as favorable to Fox shareholders as the Disney offer.
The company also said that while its bid has not been finalized, both the plans necessary to finance it and the required regulatory filings were "well advanced." Reports indicate that Comcast has arranged about $60 billion in financing to support an all-cash offer.
Not the first time
Fox reportedly rejected a previous offer by Comcast that was 16% higher than Disney's, citing "significant risk of exposure to a range of negative outcomes," including the potential for greater regulatory scrutiny and additional tax obligations if the combined company were required to divest itself of certain properties to obtain government approval for the merger.
During Fox's earnings conference call earlier this month, Executive Chairman Lachlan Murdoch said his company was "not going to comment on market speculation." When later pressed by an analyst about whether Fox would consider "competing offers" Murdoch said, "We are committed to our agreement with Disney and are working through the conditions to bring it to a closing ... our directors, though, are aware of their fiduciary duties on behalf of all shareholders." This likely means that the company would be forced to give fair consideration to a competing offer
A bidding war?
In a recent interview, Disney CEO Bob Iger said that Fox's board had already unanimously approved his company's offer, and he was "confident that [the deal] will ultimately go forward." At the time, he indicated it was "way too early" to speculate on the potential for a bidding war with Comcast. He also suggested that a deal with Disney had better prospects of receiving approval from government regulators around the world. Though those comments were made prior to Comcast's announcement, Iger's view on the subject is likely unchanged.
Comcast also made a $31 billion bid for Sky, a 16% premium to a previous offer made by Fox, which already owns 39% of the European broadcaster. The move would increase the portion of Comcast's international revenue from 9% to 25% of its total. The bid by Fox is still pending approval by U.K. regulators. Earlier this week, Britain's media minister said the offer by Comcast would likely not require a similar regulatory review.
Positioning to better compete in a new world
Each company vying for Fox's assets is an international content creation and distribution powerhouse, but the winner will markedly strengthen its position, allowing it to better compete in a media landscape that's undergoing a paradigm shift. Consumers are increasingly abandoning expensive cable packages and the schedule-driven aspect of linear TV for less expensive, more convenient streaming options.
Investors should stay tuned -- this cliffhanger could turn into a multi-episode story arc.