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World After AT&T-Time warner approval, focus shifts to comcast and disney

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The battle for the future of media has begun.

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A judge’s approval Tuesday of the $85.4 billion AT&T-Time Warner deal is sure to touch off a series of mergers as once-powerful news and entertainment companies, built for an era when cable was king, position themselves to compete against the likes of Netflix, Amazon and YouTube.

How quickly are things changing? Netflix recently surpassed Disney to become the most valuable media company at $158 billion.

That helps set the stakes for the pending clash between Comcast and The Walt Disney Co. as each seeks to own the bulk of 21st Century Fox.

In December, Disney struck a $52.4 billion, all-stock deal to buy much of 21st Century Fox’s assets. Now, Comcast plans to announce its own offer for 21st Century Fox’s assets as early as Wednesday, according to two people familiar with the matter who spoke on condition of anonymity to discuss company business.

The contest will pit Brian Roberts, the chief executive of Comcast, against Disney’s Robert Iger in what could be a fierce bidding war for a significant chunk of Rupert Murdoch’s media empire.

Comcast, which already owns NBCUniversal, has put together a bid of slightly more than $60 billion in cash and contractual assurances that Fox would be paid what is known as a reverse breakup fee — perhaps as much as $2.5 billion — in the event a transaction is blocked by the government, the people said.

But any regulatory concerns may be allayed by the straightforward approval of the AT&T-Time Warner deal. Judge Richard Leon of the U.S. District Court in Washington said the agreement could go through without either company divesting any assets.

It is hard to overstate how closely Comcast was monitoring the situation. Executives at NBCUniversal had dispatched people to wait in the courtroom to hear the verdict. Roberts waited at his executive offices at Comcast’s headquarters in Philadelphia, tuned to CNBC and keeping an eye on Twitter. According to a person familiar with the matter, Comcast’s board met Tuesday evening to discuss its revamped bid for Fox, which rebuffed an overture last year.

In November, Roberts traveled to Murdoch’s estate in the Bel-Air neighborhood of Los Angeles, according to two people familiar with the meeting who spoke on condition of anonymity because it had not been made public. There, over glasses of wine produced from vineyards on the estate, Roberts broached the possibility of Murdoch’s making a deal with Comcast. Murdoch explained that talks with Disney had already begun but that the companies were still $4 billion apart on price.

Murdoch said he had wanted $56 billion, which Roberts then offered, according to the two people familiar with the meeting. Murdoch said he would take it to the board.

The all-stock offer, which ultimately was worth about $60 billion, was rebuffed by Fox, in part because of regulatory concerns and the lack of a reverse breakup fee. The agreement with Disney came not long after.

The businesses that Murdoch has agreed to sell include the 20th Century Fox film and TV studios, almost two dozen regional sports networks like the Yankees’ YES channel, a lineup of cable networks that includes FX and a 30 percent ownership stake in the streaming service Hulu.

A deal would also include Fox’s 39 percent ownership stake in the European pay TV operator Sky. Comcast has already made an offer to buy the other 61 percent of Sky in a separate deal. (The Fox News cable network, the Fox broadcast stations, the Fox Business Network and the sports network FS1 would not be part of a transaction.)

Murdoch sees Disney’s stock as ultimately more valuable than Comcast’s, according to two people familiar with his thinking who spoke on condition of anonymity because the deal was still in process. Since Disney’s bid is in stock, Murdoch is banking on a rise in the company’s value over time. Comcast’s all-cash offer would also mean an immediate tax hit.

Still, Murdoch’s son James, the chief of 21st Century Fox, told analysts in May that the company’s leaders would consider all legitimate proposals. “The directors are very aware of their responsibilities,” he said. The younger Murdoch will leave the company if the Disney deal is completed.

Each man vying for a piece of Fox is an accomplished dealmaker.

Roberts spends a great deal of time analyzing merger possibilities and is always on the hunt. One of Comcast’s most successful transactions was for control of NBCUniversal in 2011. In 2014, he bid for Time Warner Cable but walked away after the Justice Department said it was leaning toward blocking the deal.

As the head of Disney, Iger has completed several major acquisitions, including the purchases of Pixar Studios, Lucasfilm and Marvel Entertainment, although all were private transactions that did not require approval of public shareholders.

The Fox board has scheduled a shareholder meeting for July 10 to vote on the Disney offer, but that meeting could be moved back if Comcast makes its bid, as it is expected to do as a result of Tuesday’s ruling.

AT&T’s victory shows the way forward for the media industry, which has grappled with a sharp slowdown in the past few years. The decline in pay TV subscribers has blunted businesses once thought to be invincible. ESPN, owned by Disney, has seen a significant drop in viewership as younger viewers spend more time on platforms like Facebook, Instagram and YouTube.

Mergers will allow companies to compete for costlier rights to professional sports, seen as perhaps the only way to keep viewers from cutting the cable cord and to build out their streaming services.

The pay TV industry may not be dying, but it is “slowly grinding down,” said Michael Nathanson, a founder of research firm MoffettNathanson.

Besides the coming fight over 21st Century Fox, CBS and Viacom are locked in a will-they or won’t-they situation, hinging on one of the bitterest boardroom fights in recent memory. Discovery’s $11.9 billion purchase of Scripps last year seems modest by comparison, since both of those companies revealed weak performance at the time of the merger.

Nathanson said he thought Disney will ultimately succeed in its pursuit of Fox because it has less debt than Comcast.

“But at some point, if the bid is too high from Comcast,” he said, “then Disney will have to walk away.”

This article originally appeared in The New York Times.

EDMUND LEE © 2018 The New York Times

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