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Comcast & Disney’s Fight for 21st Century Fox Might Be Decided By Taxes

In this new age of corporate consolidation, it’s starting to get weird out there. AT&T’s still firing people left and right and weathering a PR storm over the revelation it paid President Trump’s fixer fifty grand a month for a full year for advice on its proposed deal to purchase Time Warner. Viacom’s attempted hostile takeover of CBS has resulted in a legal nuclear option, hastily re-written bylaws, and talk of a $200m golden parachute for Les Moonves should he end up being pushed out, leading a stunned Delaware judge to declare, “I’ve never seen anything like what’s transpired here.” And now Rupert Murdoch’s love of tax-free wealth versus his own board’s love of money might ultimately decide who gets 21st Century Fox – Disney or Comcast.

A refresher: what began as a sketchy rumor rapidly turned into reality last December when Disney announced it would be purchasing 21st Century Fox for $52 billion, pending federal approval. The Murdochs will give up pretty much everything other than the Fox broadcast network, Fox News, and the 20th Century Fox studio lot, though they’ve agreed to rent that space to Disney. To the nerds, yay, the X-Men and Fantastic Four will finally be back with Marvel Studios! To the non-nerds, is a combined Disney-Fox really the best thing for the health of the industry?

Probably not, but that was 6 months ago. At this point, it kind of feels like a done deal. The only one standing in the way of this shotgun marriage is Trump’s Justice Department, which has been talking the talk and walking the walk about opposing AT&T and Time Warner on antitrust grounds but remained comparatively quiet about Disney and Fox.

Not so fast, though. True, much of this will hinge on the Justice Department, but there is another player here, one which is willing to outspend Disney.

Say hello to Comcast, the one-time cable company turned corporate conglomerate:

Back in November when the corporate suitors were lining up to woo the Murdochs, Disney offered an all-stock purchase valued at $29.54 per share and Comcast offered $34.41 per share. Obviously, Comcast had the higher bid, but the Fox board went with Disney instead, citing antitrust concerns. That might seem strange since a Disney-Fox merger would create just as much of a corporate monster as Comcast-Fox. Plus, both of the companies have been through this kind of thing before, Disney with ABC back in ‘95 and Comcast with NBCUniversal earlier this decade, but that’s exactly where the problem is.

Part of the Justice Department’s legal rationale for opposing AT&T-Time Warner is, essentially, “Look at what happened with Comcast and NBC.” They said they wouldn’t withhold NBC programming from rival cable companies or other competitors, but that’s exactly what they’ve done, at least according to various allegations made over the past 6 years. Now, if the AT&T-Time Warner deal ends up being blocked the Feds could come for Comcast-NBCUniversal next, especially since Comcast’s ownership was only ever approved on a 6-year probationary basis.

Comcast and AT&T are cable companies looking to own the companies which make much of the content they offer in their cable packages; Disney is a theme park/film/TV entertainment conglomerate looking to buy out a direct competitor as a way boost film and TV production and add to its theme park options. In the current legal environment, the former poses a more immediate antitrust concern than the latter. Fox picked the path of least resistance.

But Comcast isn’t giving up that easy.

Disney wants Fox partially because it will mean inheriting the Murdochs’ pending majority ownership of European pay-TV provider Sky, but the British government has been fighting the Murdochs on that front for quite some time. So, Comcast swooped in with a higher offer, sparking an ongoing bidding war. Disney’s Bob Iger conceded he might be willing to let Comcast have Sky if that’s what it will take to hold on to Fox’s other assets, which raised quite a few eyebrows since Iger previously called Sky the “crown jewel” of the Fox deal.

That’s not good enough for Comcast, though. The company wants everything. The next move: a $60 billion all-cash bid for 21st Century Fox.

If Comcast is starting to sound a bit vindictive in this tete-a-tete with Disney, it’s because this really is personal. According to CNNMoney, “Iger and Comcast CEO Brian Roberts deeply dislike one another because of a personal feud that dates back to Comcast’s hostile takeover attempt of Disney in 2004. The battle for Fox and Sky could be unpredictable and irrational.”

The battle will also take some time to play out. Comcast’s all-cash bid will only be made if the Justice Department approves the AT&T-Time Warner merger. If that doesn’t happen then Comcast will have more than just Disney and Fox to worry about since the Feds could be coming for their NBCUniversal assets next. However, if the merger goes through and Comcast officially attempts to cockblock Disney’s purchase of Fox then the decision will come down to the Murdochs and the Fox board, which has indicated it would be willing to terminate the Disney deal to accept more money from Comcast.

That, finally, is where taxes come in.

If the Feds, by approving AT&T-Time Warner, signal they won’t step in the way of a Comcast-Fox merger the Fox board will theoretically sell to the highest bidder. Right now, that would be Comcast, whose proposed $60 billion all-cash offer outweighs Disney’s $52 all-stock agreement. But it’s not that simple. As Reuters reports, there’s a big difference between “all-cash” and “all-stock” and that differences is taxes:

[Murdoch’s] family trust holds a 17 percent stake in the U.S. TV and movie giant and would face a multi-billion dollar capital gains tax bill if he accepted an all-cash offer from Comcast, tax experts told Reuters. “If the deal was done exactly the same way, but for cash rather than stock, the tax liability would be mammoth,” said Robert Willens, president of tax and consulting firm Robert Willens LLC. “Gains would be taxed at capital gain rates which, for a New York resident, amounts to about 30 percent.”

An all-stock transaction, however, would be non-taxable for all Fox shareholders. So, Murdoch actually stands to make more from Disney’s offer than Comcast’s.

That might put him in direct conflict with his own board, several of whom would actually prefer the all-cash offer. As one investment banker whose firm holds 26,000 shares in Fox told Reuters, “I always prefer cash deals. The value of a cash deal is certain.” It’s possible the Murdochs could actually get outvoted:

Murdoch’s family trust controls 39 percent of Fox due to shares it holds with special voting rights. However, under the company’s bylaws, those special rights do not apply to a vote on the Disney deal, when the Murdoch trust will only have 17 percent of the vote. That makes it easier for other shareholders to defeat him in the vote, which is expected as early as next month.

For now, it’s all academic until June 12. That’s when the ruling in the AT&T-Time Warner trial is expected. Until then, put a hold on all of X-Men joining the Marvel Cinematic Universe talk. Bob Iger and Brian Roberts are currently duking it out, and a tax-hating Rupert Murdoch could be overruled by his own board. Who knows – when this is all over, maybe NBCUniversal-distributed Blumhouse, not Marvel Studios, will be the one to make Noah Hawley’s Doctor Doom movie.

Sources: Reuters, CNNMoney, NYPost


  1. I am not sure how much I buy into the noise the Fox shareholders make…I get the impression that they are just being difficult in the hope to squeeze something more out of either the Murdochs or Disney.

    Because here it the big difference between the Disney offer and the Comcast offer: Disney’s is a win/win situation, because if the government blocks the deal, Disney will pay up a fee to Fox. So no matter how it ends, they will get something out of it. Comcast offers more cash, but refuses to offer the same kind of security. If the government blocks the deal, not only will get Fox nothing, it also runs into the risk that its stocks will go down in reaction to this particular mess. And, to be frank here, everyone with two brain cells can see that Comcast is more interested in disrupting the deal between Disney and Fox than anything else.

    Regarding Sky: Honestly, I am not sure of Iger wasn’t simply talking the company up to the Disney shareholders. Sky UK might be successful (though I think that the Murdochs were mostly interested in it because they want as much control over the media as possible), but part of the company is also Sky France and Sky Germany, and I am pretty sure that Sky Germany still is the same money grave it was six years ago, when the Murdochs went through great effort to turn it from an AG back to a GmbH, after having been forced to bail out the company no less than seven times beforehand. Pay TV just never caught on in Europe, where everyone has the pick between fairly high-quality state sponsored TV and the free TV channels who finance themselves through advertising. (Sky Germany is the follow up of the Murdoch’s buying the company which established pay TV in Germany in the first place after it went bankrupt in a spectacular manner, and lately Sky Germany has constantly raised the prices while also allowing limited advertising to cover their cost, which has in turn resulted in more and more people cancelling their subscription).

    1. It does seem fairly obvious that Comcast doesn’t so much want Fox as it just wants to fuck with Disney. Learning that Comcast’s CEO has a history with Bob Iger helps clarify exactly why.

      The reasoning for Disney’s interest in Sky, from what I understand, is less a ringing endorsement of Sky’s standing in the marketplace and more a condemnation of the stagnate U.S. TV market. It’s a similar principle as to what’s happening with the box office right now. The U.S. market has long ago peaked and is simply in a controlled decline whereas international is a growth market. Similarly, Disney wants in on the European TV market because it sees more of an opportunity for growth than it does at home.

      1. Sure, but Disney already owns shares in various European TV channels, and if they want to do anything which involved people paying for their services, streaming is a better bet than Pay TV.

      2. “they want to do anything which involved people paying for their services, streaming is a better bet than Pay TV.”

        Well, maybe they’re trying to have it both ways – hitting the streaming market hard in the US while also gunning for the Pay TV market in Europe.

      3. *snort* They can’t be truly that stupid, can they? There is a reason why pay TV isn’t widespread within Europe already, and there is nothing they can do to change this. As it stands, even establishing streaming will be a struggle.

        Honestly, I wouldn’t be surprised if in reality, the Murdoch family wanted to get rid of Sky after it became obvious that the UK government would never allow them to be sole shareholders, Disney was ready to take it off their hands and Bob Iger talked the property up so that the shareholders wouldn’t protest, and then Comcast jumped in, thinking that they could hinder Disney. But so far nobody at Disney has made any movement to fight for Sky, which tells me that it is either not that important, or not important enough to warrant a struggle.

      4. A plausible explanation.

        The industry spin I’ve seen tends to paint this more in the way I previously described – that the next stop on Disney’s world domination tour is to conquer the European TV market, and Sky represents one particular “in” to that market. It’s a similar business logic behind Netflix’s current and wildly ambitious push into European and international programming. The U.S. has been conquered already. It’s not going anywhere but down. Now, it’s time for the conglomerates to plant their flags overseas because constant growth and greedy shareholders demand forever seeking out emerging markets, and Netflix is currently adding far more new subscribers overseas than it is at home. Granted, Netflix’s business model is different than Sky’s, but there’s the general idea of Hollywood chasing after Netflix’s tail to try to stomp down on it a little and get out of ahead of them.

        Again – that’s the business argument I’ve seen made multiple times.

        The alternate explanation you’ve provided makes just as much, if not more sense. As you pointed out near the end, ever since Comcast made its hostile bid for Sky Disney hasn’t exactly been doing much to fight back. They are using Fox as their proxy in that fight, but they’re not really throwing a lot of punches. It might have been a bluff the entire time, and now that Comcast has called them on it they’re folding their hand. In that analogy, though, Comcast ends up with Sky and the question, “Did you really want Sky? Or just for Disney to not have Sky because you’re stuck in some dick-measuring contest with Bob Iger?”

      5. Well, star is actually what I suspect is the more interesting asset, since India is an emerging market and doesn’t have the same set up which makes it so difficult for pay tv to succeed in Europe.

        I might be totally off the mark, but after years of negative news regarding the state of Sky Germany, I just have a hard time to believe that pay TV has much of a future in Europe…but I can imagine that Americans might think so. I mean, that is why Walmart failed to succeed over here, they just didn’t really consider that different customers in a different market might be weirded out by too much service and a shop which sells both food and electronic items…or that the cushions might have a different size.

        In any case, Bob Iger has lead Disney from success to success, and I don’t see him failing regarding the deal of his lifetime.

      6. “In any case, Bob Iger has lead Disney from success to success, and I don’t see him failing regarding the deal of his lifetime.”

        yeah, if we’re talking whose instincts do we trust – Iger, Murdoch, or Comcast guy – the answer is obvious.

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