US cable, TV and film giant, Comcast (a bigger version of 21st Century Fox) lobbed its expected all cash bid for Fox at the Murdoch company, but added $US5 billion to it to bring it up to a massive $US65 billion, on top of the $US31 billion Comcast wants to throw at Fox’s 39% UK based pay TV business, Sky plc.
In doing so, Comcast’s offers now see the weights go on the Murdoch family to separate self-interest from a wider responsibilities to all shareholders in 21st Century to get the best possible price for everyone.
In this case it is in the family’s self-interest to take Disney shares instead of Comcast’s cash to lower or postpone tax liabilities.
Can the Murdochs ignore other shareholders who want cash and accept shares from Disney?
Comcast though has added more to its higher cash offer – it says it will also pay a further Fox and Disney a total of $US4.025 billion in so-called ‘break fees’ if it fails to get all regulatory approvals.
To cement their approval of the Disney offer, the Murdoch males – Rupert, Lachlan and James – will have to get the House of Mouse to sweeten its bid by offering more shares (thereby giving the Murdoch family even more Disney shares for their 18% stake in Fox).
Fox shareholders will already own 25% of Disney if the current deal happens. Any realistic sweetening of the offer could see that head towards 30% Disney – a level of dilution other Disney shareholders could very well reject.
The Comcast offer is nearly 20% more than the $US52.4 billion Disney share offer (These prices do not include more than $US14 billion in debt, meaning the Comcast offer will be worth close to $US84 billion).
But on top of that Comcast said in its announcement that it will continue with its $US31 billion for Sky Plc in the UK (39% owned by Fox). If Comcast goes forward with both deals, it will need more than $US96 billion in cash, as well as taking on the debt in Fox and billions of dollars of debt in Sky.
But the Murdoch family knocked back Comcast’s cash in late 2017 when Fox was negotiating with both Disney and Comcast.
Disney’s all share offer won approval from the Murdoch family, even thought Comcast had offered billions of dollars in cash more. Fox said it was taking the cheaper offer because the Disney deal offered less regulatory uncertainty than the Comcast offer in the wake of the US Government’s challenge to the AT&T-Time Warner merger.
This week’s decision approving that merger makes the Fox reasoning moot, and now Comcast emerged with a blockbuster all cash offer that places enormous pressure on the Murdoch males and the rest of the Fox board who are being watched closely by non-family shareholders such as the aggressive UK hedge fund, TCI which owns around 7% of Fox’s voting shares.
Even though the Murdoch family will be paid more than $US11.5 billion in cash under the Comcast offer, the family prefers the Disney shares because it allows the tax liabilities to be rolled forward into Disney stock.
Comcast knows that is offering pots of cash in an attempt to get non-Murdoch shareholders to the point where they will rebel and force the Murdoch-dominated board to approve the higher $US35 all cash offer (Like Fox, Comcast has various classes of voting and non-voting shares which means it can’t offer shares without affecting the level of control the Roberts family has at Comcast).
Despite that Comcast has started urging Fox shareholders to reject the Disney offer by releasing a 43 page proxy solicitation.
“We believe that a vote against the Disney merger agreement proposal will send a clear message to the 21CF board that you firmly believe the Comcast proposal is a superior proposal, that you do not want the proposed Disney transactions to be completed, and that the 21CF board should instead engage in good faith with Comcast to negotiate and execute definitive agreements with respect to the Comcast proposal,” Comcast said in a filing with the US Securities and Exchange Commission.
It should be pointed out that Fox didn’t care about the tax liabilities of Sky plc shareholders in offering 10.75 pounds in cash in its offer.
Comcast has capitalised on that by offering 12.50 pounds in cash, meaning Fox and perhaps its partner, Disney, will have to find more than $US4 billion more to win Sky.
Sky’s independent directors have recommended the higher offer, and there are no regulatory concerns in the UK or Europe, meaning that Comcast has the inside running.
Fox shares jumped to end at $US43.63on Wednesday on Wall Street. That means the rest of Fox Comcast isn’t buying (Fox News Channel, Fox TV, sports channels and various other businesses) is worth around $US20 billion.
But before all that happens, Comcast has to get its bid considered by the Fox board. Fox and Disney have scheduled shareholder meetings on July 10 to consider their deal.
Fox has revealed it is now thinking about the timing of that meeting, while there has been no comment from Disney.
The Murdochs and Disney though have enormous pressure on them to firstly consider their positions, the Comcast offer and try to either negotiate a sweeter deal, or do a deal over Sky plc as a way of perhaps offsetting the higher Comcast offers for both Fox and Sky.