May 24, 2018 / 9:43 PM / 6 months ago

Breakingviews - How Comcast can boost its chances of snaring Fox

The NBC and Comcast logo are displayed on top of 30 Rockefeller Plaza, formerly known as the GE building, in New York, New York, U.S. on July 1, 2015. REUTERS/Brendan McDermid

NEW YORK (Reuters Breakingviews) - Comcast can boost its chances of snaring Fox. The cable company is preparing to scuttle Walt Disney’s $52.4 billion bid for some of Rupert Murdoch’s media assets, and a major Fox shareholder is receptive to the idea. But Comcast Chief Executive Brian Roberts may want to offer more than just the best price to get a hearing.

On Wednesday, Comcast said it was in the advanced stages of putting together a competing proposal for Twenty-First Century Fox’s movie studios, cable networks like FX, and international holdings. It plans to offer 16 percent more than Disney’s share bid – and do so entirely in cash — and at least match the regulatory provisions and related termination fees. Disney has agreed to pay $2.5 billion, nearly 5 percent of the deal price, to Fox if watchdogs break up the deal.

Fox swatted away an offer from Comcast once before, in order to accept Disney’s proposal. That suggests price may not be the only thing that counts. True, Murdoch will only have a 17 percent say in the matter, rather than the roughly 38 percent vote his family’s trust wields in other circumstances. Yet what he wants still matters. Christopher Hohn’s investment firm TCI disclosed more than a 7 percent stake in Fox on Wednesday and urged Murdoch to run a fair auction if Comcast formalizes its bid.

Roberts can give himself a head start by sweetening some other aspects of his offer. One is the break fee. The Department of Justice’s case against AT&T’s $85 billion acquisition of Time Warner looms in the background, and a verdict is due on June 12. If that deal gets approved, that could bolster Comcast’s chances too. But that’s not a given. Even if the DOJ loses, it could be emboldened to go after Comcast and Fox.

Roberts could therefore sweeten his potential offer by raising his break fee to $6 billion, or about 10 percent of the mooted $60 billion price tag. That would still be less than the 15 percent AT&T offered when it tried to merge with T-Mobile, but twice what Disney has offered. If Comcast is confident its M&A plans would pass Washington’s smell test, it’s an easy way to win the goodwill of Fox shareholders – and score a point against Disney right from the get-go.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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