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Disney Sweetens Fox Offer to $71 Billion, Outbidding Comcast

Nick Turner

Walt Disney Co. raised its offer for 21st Century Fox Inc.’s entertainment assets to $71.3 billion, outbidding Comcast Corp. in a battle for one of the media industry’s biggest prizes.

The $38-a-share price is about $10 a share higher than what Disney proposed in December -- and $3 above Comcast’s bid from last week. Fox has accepted the offer, saying it provides more flexibility and other enhancements than the $65 billion Comcast deal.

The question now is how Comcast will respond. Chances are the cable giant will counterbid with something in the low-$40-a-share range, according to Jefferies Group LLC analyst John Janedis. But Disney may have another edge: It’s close to winning antitrust approval for its offer, according a person familiar with the matter. That means any bid from Comcast would come with more regulatory hurdles.

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At stake is a trove of media properties, ranging from “The Simpsons” to “X-Men,” that may help fend off the threat from Netflix Inc. and other streaming upstarts. 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 Chief Executive Officer Bob Iger and makes it more challenging for Comcast to respond, said Bloomberg Intelligence analyst Paul Sweeney. Comcast’s current bid was already poised to load the company up with debt, and its shares have fallen 18 percent this year.

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“It does not want to use its stock in a deal at these low levels,” Sweeney said.

Fox shares jumped as much as 8.3 percent on Wednesday, sending them to a record high. Disney rose 1.5 percent as of 1:17 p.m. in New York, while shares of Comcast climbed 1.7 percent.

AT&T Effect

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

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

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But the two sides aren’t vying for all of Fox. Part of the business will be used to create an entity called “New Fox,” which will include the highly lucrative Fox News, 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.

Cash Option

Disney’s new offer gives Fox shareholders the option to take their payment in the form of cash or 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 $13.8 billion of Fox’s net debt. That would lift the total transaction value above about $85 billion.

Fox had planned to hold a July 10 meeting for shareholders to vote on the previous Disney offer, which was hammered out in December. It said on Wednesday that the gathering will be delayed to give investors “the opportunity to evaluate the terms of Disney’s revised proposal and other developments to date.” That could give Comcast more time to come back with a fresh bid.

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

Sky High

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

If Comcast gets stymied in its bid for Fox, there’s a greater chance it will pay more to hold onto Sky, said Claire Enders, founder of media research firm Enders Analysis.

“I think the market is expecting another move from Comcast” for Sky, Enders said.

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

Comcast’s current $65 billion cash offer for Fox -- along with the potential Sky deal -- was already expected to push its debt load to $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.

Updates with Comcast report in third paragraph.

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