Comcast's Last-Ditch Plan to Snatch Fox From Disney

Illustration by: Laemeur

A war over pay TV giant Sky (and the AT&T-Time Warner trial outcome) could be a prelude to a late rival bid from Brian Roberts as Hollywood's two biggest companies "sit at the edge of a strategic precipice with much at stake."

Back in 2004, Comcast CEO Brian Roberts bid $54 billion to acquire The Walt Disney Co. with a vision to "accelerate the digital future." It was a 22 percent premium to what the Magic Kingdom was worth at the time, though then-CEO Michael Eisner — who was fighting efforts to dethrone him — rebuffed the offer anyway.

Comcast has since acquired NBCUniversal, which has performed strongly. But Roberts, some observers say, has been smoldering ever since and may now be able to get some revenge by chucking a wrench into Disney's quest to pay about the same price ($52.4 billion) to acquire most of 21st Century Fox.

In what could kick off a bidding war, the cable giant on April 25 made official its $31 billion bid for Sky, even though the European pay TV company had previously agreed to let Fox, a 39 percent shareholder, purchase the portion it doesn't already own. That could be a prelude to Comcast launching a rival, and possibly hostile, bid for the same Fox assets that Disney in December agreed to buy, thus setting up a battle for size and leverage that, even by Hollywood standards, would be ferocious.

This corporate drama is playing out simultaneously in AT&T's court battle with the U.S. government over its plan to buy Time Warner for $85.4 billion. Wall Street insiders predict the Comcast-Disney-Fox showdown won't resolve itself until a judge determines the fate of AT&T-Time Warner, with a decision expected June 12. Indeed, if AT&T-Time Warner becomes a reality, Comcast and Disney suddenly would seem smaller and likely would be more motivated to scoop up Sky. Or those Fox assets. Or all of it.

"If AT&T-Time Warner is ruled legal and closes, we expect a new Comcast bid for Fox immediately," says BTIG analyst Richard Greenfield. "If Disney acquires the Fox assets they are trying to buy, it will give Disney unprecedented control of the legacy media landscape."

Roberts addressed at least one of the issues when he told Wall Street on April 25: "We didn't choose to put Sky in play. That event happened around us." In late February, B. Riley FBR analyst Barton Crockett wrote that if Comcast wins a majority stake in Sky, "the next obvious step is to pursue the rest. That road leads through Fox."

Comcast and Fox haven't commented on such a potential bid, but one insider said Comcast could look to win over Fox's board with a higher bid. After all, a recent regulatory filing on the Disney-Fox deal argued that "third parties would be unlikely to be deterred from making a superior proposal by the provisions of the combination merger agreement, including because the 21st Century Fox board may, under certain circumstances, furnish information or enter into discussions in connection with a competing proposal."

A Comcast hostile bid for the Rupert Murdoch-controlled assets could also be an option, which might play out like this: Roberts could unveil a competing offer at a premium to Disney's bid, since the cable giant had in December signaled to Fox it was willing to pay a 16 percent higher price than Disney. At the time, the Murdochs preferred Disney in part because of the regulatory risks of the Comcast offer amid the government's challenge to AT&T-Time Warner.

If Fox's board doesn't show any interest, Comcast could then take its case to investors ahead of a Fox special shareholder meeting to vote on the Disney deal that is expected to happen this summer. Comcast reportedly has started reaching out to several financial institutions that are big Fox shareholders. (The Murdochs have a 39 percent voting stake in Fox, but in the shareholder vote, only their 17 percent economic stake would count.)

Comcast would, like Disney, highlight that owning large parts of Fox would allow it to boost original content spending across its business, including Fox networks, and reap similar benefits from combining both sides' studio units. It also can be expected to highlight the benefits of guaranteed distribution of Fox networks by the largest U.S. cable operator (with 22.3 million pay TV subscribers) and the success it has had with operating content as well as distribution assets since its 2010 purchase of NBCUniversal.

And since Disney doesn't own a pay TV distributor, Comcast should be able to yield higher synergies in a Fox deal, analysts say. "Disney is forecasting at least $2 billion of cost synergies from the Fox transaction and over $1.3 billion of revenue synergies," says Greenfield. "If those forecasts are reasonable, Comcast's synergies should be able to reach $4 billion."

While Roberts, 58, and Iger, 67, both appear to want dominion over the premier media-entertainment conglomerate, there's more than mere ego at stake, as each needs increased scale to compete with tech giants like Apple, Amazon and Google now wading into movies and TV. Mergers and acquisitions, in fact, are coming fast and furious across the industry, with PricewaterhouseCoopers saying April 26 that media-entertainment M&A reached a two-year high in the first quarter.

"Disney and Comcast sit at the edge of a strategic precipice with much at stake," says Steven Cahall of RBC Capital Markets. "Both companies are large, no doubt, but seek even greater scale."

Both companies face regulatory scrutiny for their plans, but some insiders note that Roberts is a winner no matter what happens, as he'll likely succeed in jacking up the price Fox will pay for the remaining 61 percent of Sky it has been trying to purchase since December 2016, as well as what Disney would ultimately pay for those Fox assets, which include the cable networks FX and Nat Geo as well as the film and TV studios.

Fox, meanwhile, said April 25 that it is "considering its options" on Sky and is now believed to be prepping a sweetened bid. "Comcast is dead serious on Sky," says Steven Birenberg, founder of Northlake Capital Management. "Its odds of winning Sky are less than 50-50 because its shareholders hate [the idea] and Disney can raise the price without much concern from their shareholders."

Adds Greenfield, "Comcast has never shied away from a challenge, especially when it means getting bigger."

This story first appeared in the May 2 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.