Fox Favors Disney For the Sale of Its Studio, Media Assets

Updated on
  • Murdochs see better strategic fit, fewer regulatory hurdles
  • Fox is also said to be still in active talks with Comcast
Why Fox May Favor Disney as Buyer for Media Assets

21st Century Fox Inc., the global film and TV company controlled by the Murdoch family, would prefer to sell some assets to Walt Disney Co. because it’s a better strategic fit and presents fewer regulatory hurdles, people familiar with the matter said.

The family is holding talks with Disney, as well as Comcast Corp., about combining certain media businesses with the potential buyers, said the people, who asked not to be identified because the discussions are private. The assets would include the 20th Century Fox film and TV studio and Fox’s stake in the U.K. pay-TV provider Sky Plc, they said. They don’t include Fox News, the Fox broadcast network or the Fox Sports 1 channel.

A deal could open the door for James Murdoch, Fox’s chief executive officer, to join Disney. The Murdochs aim to make a decision by the end of the year, the people said. Whether they pursue a transaction will depend on the price and structure, they said.

Lachlan, from left, Rupert and James

Photographer: Leon Neal/AFP via Getty Images

The Murdochs -- Rupert Murdoch, 86, and his sons James and Lachlan, Fox’s top officers -- are considering a sale as the market values the group below slower-growing peers. A deal would dramatically expand Disney’s global reach, giving the world’s largest entertainment company control of Sky, Star India and U.S. cable channels including FX and National Geographic.

CNBC reported Tuesday that an agreement between the companies could come as soon as next week, citing unidentified people with knowledge of the matter. The enterprise value for the assets is seen above $60 billion, the people said, according to CNBC.

Fox, based in New York, declined to comment. Disney, based in Burbank, California, didn’t respond to requests for comment.

As speculation mounted that a deal is close, shares of both Fox and Sky surged. Fox rose as much as 4.3 percent to $33.69 in New York trading, while Sky rallied up to 3.8 percent. Disney traded down 1.3 percent to $108.78 as of 10 a.m. in New York.

A deal would shuffle ownership of prized film and TV assets at a time when changing viewer habits are pressuring the television industry’s subscriber and advertising revenue. If an agreement is reached, Disney could also gain majority ownership of Hulu, an online streaming service that competes with Netflix.

As Fox’s CEO, James Murdoch has battled a series of scandals at the company, including sexual harassment allegations at the top of Fox News that have added regulatory scrutiny to the company’s 11.7 billion-pound ($15.8 billion) bid for the rest of Sky.

Click to read more about James Murdoch’s potential plans beyond Fox

Authorities are considering the takeover’s potential impact on media plurality in Britain and whether Sky News would adhere to broadcasting standards under Fox ownership. Critics of Fox have appeared before the U.K.’s Competition & Markets Authority, bringing up concerns over a 2011 phone-hacking scandal at Murdoch-owned newspapers, which scuppered Fox’s first bid for Sky, and the harassment allegations at Fox News.

If Disney or another strategic bidder buys Fox’s 39 percent stake in Sky, it would trigger a mandatory offer for the rest under U.K. Takeover Panel rules, and would probably be approved quickly by regulators, analysts at UBS led by Polo Tang said Monday in a note..

The Fox assets in play are worth almost $50 billion, according to Alan Gould, an analyst at Rosenblatt Securities Inc., and could translate into a 25 percent stake in Disney if they agree to a stock deal. That would potentially reduce the tax liability for Fox shareholders, including the Murdochs.

The talks are occurring against the backdrop of a U.S. Justice Department suit to block AT&T Inc.’s proposed $85 billion acquisition of Time Warner Inc. The government has said the merger of a large TV distributor and producer would stifle competition and hurt consumers.

A deal with Disney might overcome some of those challenges. Disney doesn’t sell TV services directly to consumers in the U.S. Chief Executive Officer Robert Iger has had success acquiring movie studios such as Pixar Animation and Lucasfilm Ltd. and a Fox deal could give Disney a controlling stake in the Hulu video-streaming service.

— With assistance by William Canny

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