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.