The bidding war for control of much of Rupert Murdoch’s media empire intensified on Wednesday as Walt Disney Co. increased its offer for Twenty-First Century Fox Inc. to US$71.3-billion.
The price tag for Fox’s movie and television studios has risen dramatically since Disney’s opening salvo last December, as Comcast Corp. has proven a determined rival bidder. The unwillingness of either company to back down underlines the appeal of Fox’s assets amid a new wave of U.S. media consolidation.
Quickly changing viewing habits are forcing traditional production and distribution companies to combine resources in order to compete with the likes of Netflix Inc., which recently surpassed Disney as the world’s most valuable media company.
With ambitions to become a direct-to-consumer powerhouse, Disney first needs to expand and round out its content offerings, said Mary Ann Halford, a former Fox executive who is now a senior adviser with OC&C Strategy Consultants.
“These are must-have assets,” Ms. Halford said. “If they’re going to try to compete against Netflix, they need to be more robust and more diversified.”
Disney shareholders and industry analysts will now wait to see if Comcast improves upon the latest offer. “Our model suggests Comcast could have a bit more dry powder to increase its offer,” RBC Dominion Securities analyst Steven Cahall said in a note to clients.
It was just last week that Comcast formally joined the pursuit of Fox with a US$65-billion all-cash bid, coming over the top of Disney’s original, US$52.4-billion offer.
The assets being fought over include the 20th Century Fox film studio, the FX and National Geographic cable networks, several regional sports channels, international assets, such as European cable operator Sky and Star India, and a one-third stake in Netflix rival Hulu.
Hulu has about 20 million U.S. subscribers, compared with Netflix’s base of about 55 million, as of the first quarter.
Additionally, there are plans for a Disney-branded streaming service to be launched next year, which will offer content unavailable to Netflix subscribers.
“Direct-to-consumer distribution has become an even more compelling proposition in the six months since we announced the deal. The consumer is voting – loudly,” Disney chief executive Robert Iger said on a conference call after announcing the new bid.
Not included in the proposed deal are Fox News or the company’s large national sports channels or broadcast network, which will all be spun off into a new company.
Excluding those assets improves the deal’s chances of getting the green light from U.S. antitrust regulators.
“We have a much better opportunity in terms of approval and the timing of that approval than Comcast does in this case,” Mr. Iger said.
Some industry analysts also see potential regulatory issues emerging from a Comcast-Fox deal, which would combine Comcast’s NBC Universal with Fox’s movie and television studios. And Comcast’s dominance in the U.S. broadband and cable markets may raise red flags among Justice Department officials.
Comcast was emboldened last week, however, when a U.S. judge quashed the Justice Department’s attempt to block AT&T’s acquisition of Time Warner Inc.
In the approval of a “vertical” merger, Comcast perceived an encouraging precedent and made its offer for Fox the next day at a premium of more than 20 per cent over Disney’s bid.
“Comcast does seem intent on winning this one. Rivalry can frequently drive prices to uneconomic levels,” said Jeffrey Logsdon, an analyst with JBL Advisors.
But Disney is “clearly not going away,” Ms. Halford said.
The Disney bid also seems to have the blessing of Mr. Murdoch. “We remain convinced that the combination of 21st Century Fox’s iconic assets, brands and franchises with Disney’s will create one of the greatest, most innovative companies in the world,” he said in a statement.
Additionally, Disney’s offer is split 50-50 in cash and stock, meaning Mr. Murdoch and his family would face a much smaller capital gains tax hit than under Comcast’s all-cash bid.