Disney's Fox Win Is All But Assured, Though Questions Remain

(Bloomberg) -- Walt Disney Co.’s nearly yearlong quest to acquire the entertainment assets of 21st Century Fox Inc. is almost over. But the two companies still have big decisions to make.

In a pair of meetings in New York on Friday, both sets of shareholders are expected to overwhelmingly approve the $71 billion deal, which will deliver the 20th Century Fox studio and other properties to Disney. Shareholder advisory firms have already urged investors to sign off on the transaction, and the meetings are largely perfunctory at this point: Neither company’s chief executive officer is expected to attend.

The vote itself will leave unresolved issues. With the deal, Disney inherits Fox’s 39 percent stake in Sky Plc and will have to decide whether to bid for the whole company or let Comcast Corp. take over. The entertainment giant also becomes majority owner of the Hulu LLC streaming network at the same time it’s launching its own online services. Finally, Disney has agreed to divest Fox’s 22 local sports channels.

Fox has been trying to acquire the 61 percent of Sky that it doesn’t own, and a U.K. Judge on Friday dismissed an advocacy group’s legal challenge over the offer. But Comcast is making its own play for the British satellite-TV company and currently has the higher bid. (Comcast, the owner of Universal Pictures, also attempted to buy Fox’s entertainment assets, but gave up last week.)

Sky Battle

The question now is whether Disney and Fox will keep up the effort to acquire the rest of Sky or just cede the fight to Comcast. Fox has until Aug. 9 to launch its offer for Sky shares, but unless it tops Comcast’s $34 billion bid, investors aren’t likely to accept it. Some analysts and investors believe that Disney won’t overextend itself by competing against Comcast.

“The expectation is that that will not happen,” said Paul Sweeney, a Bloomberg Intelligence analyst. “I think there is probably some agreement reached between Comcast and Disney -- that Disney will buy Fox and Comcast will buy Sky.”

Both Disney and Comcast will be closely watching another meeting on Friday -- in London, where the U.K.’s takeover agency is expected to hold hearings on the price that Sky bidders should have to pay.

The panel has the power to set the minimum price for any bid for Sky, a factor that could add billions of dollars to either offer. Disney has acknowledged the upcoming decision and said every 1-pound increase in the offer price for Sky shares would represent about $1.5 billion of extra debt and $60 million of interest costs a year.

The panel will consider the matter Friday, though it isn’t expected to make a decision. It’s likely that it may just keep the current price floor -- 14 pounds a share, which is below Comcast’s offer.

Sports Networks

Another wrinkle: Disney plans to sell Fox’s regional sports networks, or RSNs, to help secure U.S. regulatory approval. Disney has said it would sell assets of up to $1 billion, including the RSNs. One more asset in focus will be Fox’s stake in Hulu, the streaming company behind “The Handmaid’s Tale,” in which Comcast also has a stake.

Disney will have 60 percent of the company in the wake of Friday’s transaction, but it’s possible that either it sells the Fox stake to another party or Comcast sells its stake to Disney.

The Disney-Fox transaction also will need regulatory approval from a string of other countries.

©2018 Bloomberg L.P.