Disney-Fox Deal Gets Brazil Clearance Subject to Sports Sale

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Walt Disney chairman and CEO Bob Iger

The entertainment giants clear one of the final regulatory hurdles for their $71.3 billion mega-deal.

Brazil's antitrust regulator CADE on Wednesday approved Walt Disney's $71.3 billion takeover of large parts of 21st Century Fox subject to the sale of the Fox Sports channel in the country and related sports program rights.

In a concession to regulators, Disney agreed to sell not only Fox Sports in Brazil but also all the network's broadcast rights, which include the regional Libertadores Cup soccer competition, to address concerns that the company would have a dominant position in sports in the country due to owning both ESPN and Fox Sports. "The measure aims to eliminate competitive concerns in the pay TV sports channel market," CADE said.

Brazil was one of the final regulatory hurdles for the mega-deal, which is expected to close soon. Mexico is also nearing final regulatory approval of the deal with similar conditions. Walt Disney chairman and CEO Bob Iger is understood to have recently traveled to Latin America to seal the regulatory approvals.

"Whatever the decision of the local regulator, the assets involved are far too small to jeopardize the closing, but could conceivably push it back a bit," Bernstein analyst Todd Juenger had said in a recent report. Disney has long said that it expects to complete the transaction by June.

The potential combination of Disney's ESPN and Fox Sports in Brazil had raised concerns. CADE late last year handed the case to its administrative tribunal, recommending measures should be taken to avoid what it called "a significant increase in concentration in the market of sports channels on cable TV and a high probability that Disney could control the market."

The Brazilian sports television market is mostly ruled by the ESPN and Fox Sports paid channels. According to newspaper Estadao, the combined market share of the networks could reach 40 percent in the country. The two own the Latin American rights to air some the most popular sports leagues and tournaments in the world: ESPN airs the NFL, NBA and English Premier League soccer, while Fox shows major league soccer matches from Spain, France, Germany and Argentina, as well as the Libertadores Cup.

"The sale of the Fox Sports channel aims to allow the market structure to remain with the same competitive pressure prior to the merger, with the continuation of three sports channel options for consumers in Brazil: SporTV (GloboSat), ESPN and a new company with the assets of Fox Sports," CADE said.

The assets to be divested includes all rights to air sports events owned by Fox Sports, all contracts with pay TV operators, key employees, real estate and transmission equipment. The deadline for Disney to reach a sale wasn't disclosed.

The sports TV market power of the combined company has been a topic in the U.S., as well. The Department of Justice approved the deal with the stipulation that Disney, led by chairman and CEO Bob Iger, divest Fox’s 22 regional sports networks.

In Mexico, Congress representatives expressed concern about a possible sports channel monopoly after antitrust office COFECE approved the deal in late January, under the condition that Disney gives up its stake in Walt Disney Studios Sony Pictures Releasing de Mexico (WDSSPR). While final approval is still needed from the country's Federal Telecommunications Institute, President Andres Manuel Lopez Obrador recently declared there might be "a conflict of interest," because a former regulatory official has been hired by one of the companies handling the deal.

Asset sales were a condition for the green light for the deal in the European Union, which required that Disney give up its stakes in such networks as History and Lifetime in Europe.

China, on the other hand, gave its unconditional approval of the deal in November in a major win for Disney in the second-largest box office market in the world.

The deal will unite Disney's Star Wars, Marvel and Pixar brands with Fox's Avatar, X-Men and Simpsons franchises.

Adding Fox’s stake in Hulu will boost Disney's ownership in the streaming service to 60 percent. The company plans to launch its Disney+ streaming service with content from Disney and Fox late this year.