Anything-Goes Deal World Emboldens Comcast to Fight for Fox

Don’t say you weren’t warned.

And AT&T-Time Warner hasn’t even been decided in court yet.

Photographer: Andrew Harrer/Bloomberg

Just as I expected. Efforts by the U.S. Justice Department to block AT&T Inc.’s takeover of Time Warner Inc. look set to fail. Now, newly emboldened acquirers are coming out of the woodwork to attempt their own megadeals that would have normally been seen as problematic from a regulatory standpoint. So here comes Comcast Corp., ready to give this new anything-goes deal environment a shot.

Comcast, the cable giant, is reportedly trying to line up financing so that it can make a counteroffer for 21st Century Fox Inc.’s entertainment assets. Fox had already agreed in December to sell those assets to Walt Disney Co. for $52 billion, plus the assumption of some debt. But Comcast wants them so badly that, evidently, it’s willing to double its own debt level to make what may be a more palatable all-cash bid than Disney’s stock-only offer. 

Big Deals, Big Numbers

Disney made an all-stock offer worth $52 billion to buy most of Fox's entertainment assets and take on their debt, but now Comcast is trying to arrange financing for a cash counteroffer

Note: Details around Comcast's potential bid are unclear, so financing is a rough estimate.

Source: Bloomberg

It’s clear that the AT&T-Time Warner trial prompted Comcast to try to steal the Fox deal out from under Disney. Recall that back when the Fox deal was initially being negotiated, Comcast was said to have made the prevailing offer. However, Rupert Murdoch went with Disney in large part because the regulatory hurdles facing Comcast seemed significant. Now, maybe not so much.

Comcast is one of the country’s biggest pay-TV and internet-service providers, and it also owns NBCUniversal, giving it power up and down the industry chain — the same scale AT&T, a wireless carrier and pay-TV provider, is seeking in buying Time Warner. Disney, on the other hand, is mainly in the business of producing TV shows and movies, and it’s only now trying to move into direct-to-consumer distribution by launching its own apps. Buying Fox was also meant to give it control of Sky Plc, the British broadcaster and satellite-TV service, which Comcast also recently tried to upset. Bidding directly for Fox ups the ante.

Beyond the concern that a combined AT&T-Time Warner will be directly harmful to consumers, I’ve argued that the even bigger risk is that it will open the M&A floodgates and create legal precedence that would hamstring regulators in the future. But that’s a tough case to prove. Judge Richard Leon in the AT&T deal trial is essentially being asked by the government attorneys to predict the future, whereas the law tends to be backward-looking. The passage of Comcast’s own deal for NBCUniversal some years ago is often cited as one of the reasons to allow AT&T-Time Warner.

Already T-Mobile US Inc. and Sprint Corp. are back at it, agreeing to a merger last month just as the odds of the AT&T-Time Warner deal began to shift further in the companies’ favor. I wouldn’t be surprised if Charter Communications Inc., Dish Network Corp. and Verizon Communications Inc. are sniffing around for their own transactions next. In the media sphere, Discovery Communications Inc. recently bought Scripps Networks, the parent of HGTV, and CBS Corp. and Viacom Inc. are trying to work out a merger of their own, should their leadership’s egos allow this time. 

With respect to Disney and Comcast, my opinion hasn’t changed: Comcast’s investors are much less comfortable with the idea of buying Fox than Disney’s investors are. The goodwill that Disney CEO Bob Iger has built with his shareholder base through a trifecta of smart acquisitions enabled him to strike the Fox merger without technically spending a dime. Iger is astutely preserving Disney’s balance sheet, while Comcast is going all in on the debt option, the way most other dealmakers are lately. Comcast’s stock dropped more than 4 percent Tuesday, and that’s telling.

Not Enthused

Comcast's stock has fallen since it signaled a potential bidding war for Sky and now for Fox's assets that Disney was set to acquire

Source: Bloomberg

Comcast could very well win this thing — its pockets are deep. But it’s going to have a hard time persuading shareholders and analysts that shelling out all that money for Fox and Sky is worth it, or convincing regulators that such a deal won’t harm the market and consumers. That case is less prickly for Disney.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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