U.S. Department of Justice Approves Disney-Fox Deal

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Disney (NYSE: DIS) has won U.S. antitrust approval to buy most of 21st Century Fox’s (NYSE: FOX) assets for $71.3 billion, on the condition that it sells 22 regional sports networks (RSN). This news is a blow to Comcast, which has been seeking to buy the same assets. The assets being sold in this deal include Fox’s offerings on television as well as a stake in Sky and Hulu, in addition to Fox Studios. However, the DoJ’s conditions require Disney to divest 22 regional sports networks, as it could lead to higher prices for sports programming on cable. In the wake of recent developments, Disney is also willing to divest Fox businesses generating as much $1 billion in EBITDA, an increase over the $500 million the company stated in its original merger agreement. Going forward, Disney would have 90 days after closing the deal to complete selling off the RSNs, with a possible 90-day extension.

Disney-Fox Deal Timelines

Fox has had a productive run over 2018 thus far, and the recent approval of the AT&T-Time Warner deal had opened up a bidding war for Fox’s assets between Disney and Comcast. Disney won the original bidding for the majority of Fox’s assets in December, with a $52.4B all-stock deal. However, Comcast came in with a superior $65 billion all-cash bid – as shown in our interactive dashboard here – after the approval of the AT&T-Time Warner deal, prompting Disney to boost its offer to $71.3 billion in cash and stock.

What’s Next?

The deal still needs some foreign approvals, as well as approval from the shareholders of both companies. As of now, no meeting is scheduled as yet. It appears that Comcast may be hesitant to continue the bidding war, which is getting more expensive and may not make a lot of financial sense for Comcast due to debt load it would require. However, according to a report, Comcast is trying to find outside financing, potentially private equity, in order to offer as much as $90 billion for the assets. In that scenario, Comcast could take Fox’s international assets while the partner would take on the 20th Century Fox studio, FX Networks, and other U.S.-centric businesses. Even so, Comcast would still likely have to issue substantial additional debt, which may not be ideal given its existing debt load.

Fox Assets Fit Well In Disney’s Portfolio

Disney will use movie content from Fox to compete in the rapidly changing streaming space, where competition now includes companies such as Amazon (NASDAQ: AMZN) and Netflix (NASDAQ: NFLX). The addition of Fox’s movie portfolio could direct more consumers to Disney’s streaming platform, which is expected to launch in 2019, following the expiry of the Netflix and Disney’s deal at the end of 2018. Disney and Fox would control more than 40% of the domestic movie box office, dominating film studio rivals such as Universal Pictures (owned by Comcast), Warner Bros. (owned by Time Warner) and Paramount Pictures (owned by Viacom). With the Fox deal, Disney would also become the controlling shareholder of online streaming service Hulu (with a 60% stake).

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