Disney Could Give Up Sky to Get Fox Assets

Brian L. Roberts speaks during the Fortune Global Forum 2-November 3, 2015-Getty-H 2018
Justin Sullivan/Getty Images

To fend off a possible bid from Comcast CEO Brian Roberts, Disney chief Bob Iger could let Comcast have Sky.

Bob Iger once called Sky a "crown jewel," but the realization is setting in that the Disney CEO may have to concede the European broadcaster so it can push through its deal to acquire much of 21st Century Fox before Comcast messes it all up, a source with knowledge of the situation tells The Hollywood Reporter

Disney’s proposal includes Fox’s 39 percent interest in Sky, and by the time a Disney-Fox merger would be approved, Fox may own the entire thing, which is coveted by Iger, though not at the expense of the whole Fox deal.

Comcast is said to be readying a cash offer of about $60 billion for the same Fox assets Disney has agreed to acquire for $52.4 billion, and Comcast has also offered to buy all of Sky for $31 billion. In order to appease Comcast, and sweeten its offer for Fox, Disney may encourage Fox to let Comcast have Sky.

As the deal stands now, if Comcast were to get Sky, Disney would assume about $12 billion less in debt when it acquires Fox in the partial merger. That could represent more negotiating power should Disney still need to outbid Comcast for the Fox assets. 

Letting Comcast get Sky so that Disney could close on Fox is an arrangement that makes sense, given Comcast’s mission is to grow more rapidly overseas and Sky could be a perfect fit, while Disney’s goal has more to do with total domination of the movie business and crushing Netflix.

Disney, courtesy of Star Wars, Marvel and Pixar, is already tops in film with a 22 percent share of the domestic box office last year, and adding Fox’s Avatar, X-Men and Planet of the Apes franchises could make it the most formidable studio in the history of Hollywood. As for Netflix, Disney is planning to launch a competing product next year and Iger said on Tuesday that Fox content would be part of it. He also said the plan is that nothing on Disney’s over-the-top service would be available to any other digital entity, so he will need a good amount of strong, exclusive content if he’s expecting to do battle with Netflix, the worldwide leader with 125 million subscribers.

Another Disney goal is to get Fox’s portion of Hulu which, added to what it already owns, would give Disney 60 percent. Interestingly, Iger said Tuesday that Hulu and the upcoming Disney service would co-exist just fine, suggesting Disney content that is inappropriate for the latter would be fed to the former.

As for Fox, it is controlled by Rupert Murdoch, and his plans include becoming one of the largest shareholders of Disney, the premier entertainment conglomerate run by Hollywood’s best CEO. Should the deal close, he would own about 5 percent of the $153 billion company. Murdoch is said to like the Disney deal that involves payment in stock more than a Comcast cash offer that could carry more tax liability. Murdoch's son Lachlan is likely to run what's left of Fox after a sale to Disney (or Comcast), while son James is likely to venture out on his own, perhaps creating a company that will invest in digital-media startups.

For Comcast CEO Brian Roberts, whatever happens is viewed as a victory, as he could acquire Sky, most of Fox or all of the above. If he doesn’t, he will have succeeded in driving up the price Disney must pay for any or all of those assets.

Everything remains in flux, but some on Wall Street see Sky as a near deal-breaker for Disney.

"Is there any scenario where Disney would proceed with Fox, but allow Comcast to assume majority control of Sky?" asks BTIG analyst Richard Greenfield. "We continue to believe Sky is critical to Disney's direct-to-consumer ambitions and international expansion."

On the other hand, Stephen Cahall of RBC Capital Markets calls Fox "quite important to Disney" while adding that Sky is "less so."

Kim Masters contributed to this report.