Disney Gets China Approval for Fox Acquisition

Robert A. Iger attends the 2018 LACMA Art + Film Gala at LACMA  - Getty-H 2018

Both companies' stocks rose on the news.

China has given unconditional approval to Walt Disney's $71.3 billion planned takeover of large parts of 21st Century Fox, Disney said Monday.

The news drove the stocks of both companies higher, as some on Wall Street had feared complications in the approvals process.

The deal still requires regulatory approval from a number of nations around the world, but the unconditional green light from China represents a huge win for Disney, given President Donald Trump's escalating trade war against China and the scale of the studio's business in the country, which is home to the world's second-largest box office by revenue.

Prior to Monday's approval, some analysts had voiced concerns that China's regulators might resort to weaponizing their antitrust approval process to stymie the ambitions of America's corporate giants, such as Disney and Fox, as an act of retaliation against U.S. tariffs.

Although already given a green light by shareholders and the U.S. Department of Justice, a deal of Disney-Fox's globe-spanning stature always requires antitrust approval from a number of foreign national regulators. And the growth of China's massive marketplace has given Beijing's voice, in particular, considerable sway. American chipmaker Qualcomm, for example, saw its $44 billion acquisition of a Dutch semiconductor company go bust in July when China declined to rule on the transaction.

China’s anti-monopoly agency, the State Administration for Market Regulation, never commented publicly on the proposed transaction. Instead, it simply let the clock run out without extending approval. The action — or lack thereof — was widely interpreted as a response to Trump's trade war.

Disney has said that it expects to close the Fox acquisition during the first half of 2019, with many saying that the Chinese deal approval was one of the key pieces of the deal puzzle investors had expressed worry about.

But Buckingham Research Group analyst Matthew Harrigan earlier this month wrote in a report: "We continue to think that it is unlikely that Beijing will 'weaponize' its antitrust approval process for the Disney Fox deal — even though the State Administration for Market Regulation has never publicly commented on the deal. China continues to posture itself as a champion for globalization, and Disney CEO Bob Iger has an exceptionally good relationship with Chinese President Xi Jinping."

The approval by China indeed continues Disney chief Iger's rare winning streaking in the highly regulated Middle Kingdom media market. Disney under Iger arguably has done more to cultivate ties with Beijing than any other international media company, most notably the two decades' worth of courtship that culminated in the launch of the Shanghai Disney Resort in 2016. Around that time, the Chinese president welcomed the exec for a meeting inside China's Great Hall of the People, the ceremonial seat of the country's legislature — an exceedingly rare honor for a non-head of state. So far, Disney's Avengers: Infinity War is the highest-grossing Hollywood release at China's box office in 2018 with a whopping $360 million in ticket sales.

Overall, the regulatory process for the Disney-Fox deal to date has gone well, even though European antitrust regulators recently required Disney to divest its stake in all of the factual channels it controls in the European Union, namely History, H2, Crime & Investigation, Blaze and the Lifetime channels. The sale was said to remove a problematic "overlap between Disney's and Fox's activities in the wholesale supply of factual channels in the [EU]," according to the European Commission. The channels are controlled by A+E Television Networks, which is a joint venture between Disney and Hearst. 

Disney initially agreed last December to buy the majority of Rupert Murdoch's Fox entertainment empire for $52.4 billion in stock. But Comcast then entered the fray and sparked a bidding war, which Disney ultimately won with a considerably higher $71.3 billion bid.

The deal would expand Disney’s already powerful position in the feature film business, uniting Disney's Star Wars, Marvel and Pixar properties with Fox's Avatar, X-Men and The Simpsons franchises. The pact also brings together Disney's television assets, including ABC and ESPN, and Fox's FX Networks, National Geographic and some 300 international channels, along with Fox’s stake in Hulu, which would give Disney a 60 percent stake in the online streaming service.

The Fox assets are seen as an important building block of Disney's push into direct-to-consumer services, including the Disney+ streaming service it expects to launch late next year.

Meanwhile, Comcast recently won an auction battle for European pay TV giant Sky for about $39 billion, with Disney then allowing Fox to sell its remaining 39 percent stake in Sky to Comcast for roughly $15 billion.