Fox accepts new Disney bid of US$71 billion, putting Comcast in a tight spot

Media company 21st Century Fox accepted a sweetened, US$71.3 billion offer from Walt Disney for its entertainment assets, a bid which eclipses Comcast’s in a battle for one of the media industry’s biggest prizes.

The US$38-a-share price is about US$10 a share higher than what Disney offered in December – and US$3 above Comcast’s bid from last week. The new agreement also offers more flexibility and other enhancements than the Comcast offer, Fox said on Wednesday.

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At stake is a trove of media properties, ranging from The Simpsons to X-Men and Deadpool that may help fend off the threat from Netflix and other streaming companies. Both Disney and Comcast are looking to use the Fox assets to bolster their content and expand overseas.

Disney’s latest offer is a “very aggressive move” by CEO Robert Iger and may make it difficult for Comcast to respond, said Bloomberg Intelligence analyst Paul Sweeney. Comcast’s current bid was already poised to load the company with debt, and its shares have fallen 18 per cent this year.

“Comcast’s balance sheet may preclude it from bidding much higher,” Sweeney said. “Further hampering Comcast’s ability to respond is its position that it does not want to use its stock in a deal at these low levels.”

Fox shares jumped as much as 6.8 per cent on Wednesday, sending them to a record high. Disney rose about 0.6 per cent in the morning trading session in New York, while shares of Comcast were little changed.

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The tussle follows AT&T’s victory over the US Justice Department in its antitrust battle to acquire Time Warner. That outcome is expected to spur a wave of media consolidation, emboldening companies to get more aggressive with deals.

The Disney-Comcast contest will determine who controls much of Rupert Murdoch’s empire, including Fox’s movie and television studios, television networks such as FX, and multichannel providers like Star India and Sky Plc.

But the two companies are not vying for all of Fox. Part of the business will be included in an entity called “New Fox”, which will feature the lucrative Fox News channel, the sports channels FS1 and FS2 and the Fox broadcasting channel. That operation will be run by Lachlan Murdoch and focus on domestic television, news and sports.

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Disney’s new offer gives Fox shareholders the option to take their payment in the form of cash and stock, up to a 50-50 level. The previous agreement was an all-stock deal, and Comcast’s cash offer was seen as a significant enticement.

Disney also plans to take on about US$13.8 billion of Fox’s net debt. That would lift the total transaction value above US$85 billion.

Meanwhile, there’s a separate – yet intertwined – fight for Sky, the British pay-TV company partly owned by Fox. Fox has tried to acquire the portion of Sky that it doesn’t already own, but Comcast swooped in with a higher bid.

Sky shares climbed as much as 3.5 per cent, a sign investors expect the Disney deal to help deliver them a higher price.

In any case, Comcast isn’t likely to go away quietly.

Comcast’s current US$65 billion cash offer for Fox – along with the potential Sky deal – was already expected to push its debt load to US$170 billion, according to Moody’s Investors Service. That leaves CEO Brian Roberts with some tough decisions.

“The ball is now in Brian Roberts’s court,” Sweeney said.