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The Walt Disney Co. has made a $2.5 billion bet that it will gain approval from regulators to consummate the proposed acquisition of much of 21st Century Fox. That’s the termination fee outlined in the deal to create a global content powerhouse.
Now that Disney’s Bob Iger and Fox’s Rupert Murdoch have made their big announcement, the deal will be reviewed at the Justice Department and possibly by other agencies, like the Federal Communications Commission. Particularly scrutinized will be industry consolidation of large production studios, regional sports networks being put under the roof of the company that owns ESPN and Disney’s would-be greater control over Hulu. Because the transaction also deals with international assets like Fox’s big stake in European pay TV giant Sky and Star India, there will also be competition regulators around the globe taking a look.
Disney sees the deal as necessary to compete with Netflix and other tech behemoths. The media giant is apparently willing to stake a lot on the deal without any guarantee that the merger will be effectuated. The termination fee is often one of the last pieces negotiated in a transaction of this size. In this instance, the $2.5 billion is multiples of the $500 million that was promised by AT&T to Time Warner if that $85.4 billion deal was blocked. The Justice Department is now aiming to enjoin AT&T’s deal in a lawsuit.
Break-up fees also swing the other way in case there’s a change of heart.
For this deal, Fox would have to pay Disney $1.525 billion if it backs out. Compare that to $1.725 billion that Time Warner would potentially pay AT&T for calling off the marriage.
According to regulatory filings, the deal has a one-year timeline, but an extension can be taken if circumstances warrant.
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