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Disney/Fox reach $71B deal, blowing away Comcast

The Walt Disney Co.'s new offer is 36 percent higher than the $52 billion deal it reached with 21st Century Fox in December. Some analysts expect Comcast to counter.

Disney's Bob Iger, Comcast's Brian Roberts and 21st Century Fox's Rupert Murdoch
Disney's Bob Iger, Comcast's Brian Roberts and 21st Century Fox's Rupert MurdochRead moreHandout

The Walt Disney Co. agreed Wednesday to buy 21st Century Fox assets for $71.3 billion in cash and stock, topping Comcast Corp.'s $65 billion offer to the Fox board and ratcheting up a takeover battle that will load the winner with tens of billions of dollars in debt.

Fox's board accepted the offer.

Disney's $38-a-share deal for Fox shares is 36 percent higher than the one it reached with Fox in December for $28 a share. Disney CEO Bob Iger said that there were higher valuations for entertainment assets, and that Trump's tax changes justified the richer offer because they will lead to lower corporate taxes.

Some believed that Disney was going for a "knock-out punch," but several analysts thought that Comcast would counter. "We would also expect a follow-up bid from Comcast," said analyst Michael Nathanson of MoffettNathanson LLC. Comcast did not have any immediate comment.

"It's crazy. The only ones who will win are [Rupert] Murdoch and the Fox shareholders," said Brad Adgate, a longtime media analyst in Cambridge, Mass. Adgate said he believed that Disney had no option but to top the Comcast offer to maintain its reputation and credibility with shareholders.

Comcast attempted to reach a deal with Murdoch, 87, last November and December for the Fox assets, but the Fox founder chose Disney. Based on the new deal, Murdoch still favors Disney.

Critics of the first Disney deal said that Murdoch appeared to be structuring it with stock to avoid the taxes that would have to be paid in a cash deal on his Fox shares. But the new Disney deal is a cash and stock offer that would seem to avoid a conflict-of-interest with the Murdoch family over taxes, because Fox shareholders could choose cash or stock in the transaction.

Comcast and Disney are each looking to expand globally and gobble up Hollywood studios to compete with Netflix and Amazon Prime. Iger said in a conference call Wednesday that there were no plans to carve up the Fox assets between Disney and Comcast.

Disney has said that it would launch direct-to-consumer businesses similar to Netflix and Amazon Prime with its Disney and Fox content. Comcast — which is mostly landlocked in the U.S. with cable and internet businesses — has said the Fox businesses would complement its NBCUniversal entertainment subsidiary, allowing it to tap faster-growing international markets in Europe, India, and Latin America.

Among Fox's global assets are its 39 percent stake in the Sky satellite-television service in Europe and Star India.

Analysts fear that Comcast or Disney will vastly overpay for the Fox businesses. Fox shares soared 7.3 percent, or $3.21, to $47.50. Comcast stock jumped 1.8 percent, or 58 cents, to $33.39 and Disney shares climbed 1 percent to $107.15.

Fox and Disney also postponed a July 10 shareholder meeting at which Fox shareholders were expected to vote on Disney's first $52.4 billion all-stock bid, or $28 a share, so that shareholders can consider Disney's revised stock-and-cash offer totaling $71.3 billion.

Postponing the shareholder meeting could provide time for Comcast to make a counter-bid and cool what had been some mounting hostility as Comcast was prepared to go over the Fox board's heads and solicit its shareholders directly.

"Disney is going for the knockout punch, and they just may have delivered it," Lloyd Greif, a Los Angeles investment banker who is not involved in the deal, told the Los Angeles Times. "It also makes it crystal-clear who Rupert wants as his go-forward partner. Bob [Iger] didn't come up with this counter-offer in a vacuum — he had help."

Comcast's $65 billion offer last week was triggered by a favorable ruling in the federal courts that allowed AT&T Inc. to close on its acquisition of HBO- and CNN-owner Time Warner. Comcast believed that the U.S. District Judge Richard Leon's ruling gave it the green-light to go after Fox.

But Disney's CEO disputed that view. "We completely refute what [Comcast] said when their made their bid," Iger said.

Iger said that Comcast would still face a skeptical Justice Department in Washington because of its cable-TV and internet businesses. Combining these distribution businesses with Fox's entertainment assets would "vertically integrate" Comcast, which was a concern with the Justice Department when Comcast bought NBCUniversal in 2011, Iger said.

Comcast has said that the streaming businesses have matured and that the pay-TV business is far more competitive than it was in 2011 and so its vertical integration should not be a concern for regulators.

Other Fox assets that Comcast or Disney would acquire include the FX and National Geographic cable channels, 22 regional sports networks, Twentieth Century Fox Film, Fox Searchlight, Fox 2000, Blue Sky, Fox International Productions, Twentieth Century Fox Television Group, and Endemol Shine Group studios.

The deal would load Disney with tens of billions of debt. If Comcast closed on the deal, it would be the second-most-indebted company in the world, behind only AT&T/Time Warner. Moody's Investor Investors Service warned on Wednesday that it could downgrade Disney's debt with a Fox deal.