July 16, 2018

Breakingviews: The Bidding War Continues

by Breakingviews.

Dealmakers set little store by trust. That’s why M&A lawyers are paid so much. It also explains why Comcast and Walt Disney are unlikely to declare a sensible truce in their bidding war for Twenty-First Century Fox.

The cable group led by Brian Roberts and the Burbank-based giant both have their hearts set on the entertainment and international assets being sold by Rupert Murdoch’s Fox. As of Friday morning, Disney’s $71 billion deal was the highest offer for the Fox assets, which include a 39 stake in UK pay-TV group Sky. But Comcast has lodged a superior 26 billion pound offer for Sky’s London-listed shares.

Since both bids stretch the limits of financial logic, detente would be sensible. Comcast is arguably a more logical owner of Sky. If Disney Chief Executive Bob Iger and Murdoch pledged to sell Fox’s 39 percent stake in the UK broadcaster to the cable group, Comcast could in turn drop its pursuit of Fox. The New York Times and CNBC reported this week that Roberts may focus his efforts on Sky.

An armistice would prevent the two sides from chasing prices even higher. Meanwhile the proceeds from selling Fox’s Sky shares would cushion the hit to Disney’s balance sheet.

Yet agreeing a ceasefire is not so easy. Iger said on a call last month that Disney’s merger agreement with Fox prohibits him from agreeing a carve-up with Comcast. That means any truce would have to be telegraphed publicly.

Comcast’s decision on Wednesday to raise its offer for Sky, but not for Fox, might be such an overture. However, it could also be a double-bluff. If Disney and Fox decided to give up on Sky, there’s nothing to prevent Roberts from lobbing in another bid for Fox before Murdoch and his fellow shareholders vote on the Disney offer later this month.

On the other hand, if Roberts decides not to challenge the Disney-Fox marriage, Iger could then frustrate Comcast’s efforts to own Sky by sitting on the 39 percent stake, or demanding a crazy price.

Since there’s no love lost between Iger and Roberts, who once attempted a hostile takeover of the Magic Kingdom, such good-faith deal-making seems unlikely.

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