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Comcast offers US$65b for Fox in showdown with Disney

At US$35 a share, the unsolicited all-cash proposal represents a 19% premium over the Disney offer

New York

COMCAST Corp made a long-awaited offer to acquire much of 21st Century Fox Inc, topping a previous proposal by Walt Disney Co and setting up a bidding war for Rupert Murdoch's media empire.

Comcast, the largest US cable-TV provider, said that its offer reflects a US$65 billion value for Fox's entertainment assets. At US$35 a share, the bid represents a 19 per cent premium over the Disney offer, the company said on Wednesday. And it is cash, rather than the stock that Disney is proposing.

The move follows AT&T Inc's victory over the US Justice Department in its antitrust battle to take over Time Warner Inc. That outcome is expected to spur a wave of media consolidation, emboldening companies to make offers that they might otherwise have skipped.

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Disney and Comcast are locked in a high-stakes contest for the Fox entertainment assets, which include movie and TV studios, television networks such as FX, and multichannel providers such as Star India and Sky plc. With Wednesday's bid, Comcast chief executive officer Brian Roberts is seeking to disrupt Disney CEO Bob Iger's plan to use Fox properties to bolster that company's already-vast entertainment offerings.

Comcast first approached Fox last year with an informal proposal. Comcast bid 16 per cent more than Disney for Fox's media properties, but that offer was deemed too risky. The AT&T decision has lifted some of those clouds.

Mr Murdoch also was not swayed by Comcast's overtures because the cable company did not offer a break-up fee. Comcast said last month that its new offer would be at least as favourable to Fox shareholders as Disney's terms. Indeed, the proposal unveiled on Wednesday includes a US$2.5 billion termination fee - similar to what Disney has offered.

"We are pleased to present a new, all-cash proposal that fully addresses the board's stated concerns with our prior proposal," Mr Roberts said in a letter to Mr Murdoch and his sons, Lachlan and James, who also serve as Fox executives.

"We are also highly confident that our proposed transaction will obtain all necessary regulatory approvals in a timely manner, and that our transaction is as or more likely to receive regulatory approval than the Disney transaction."

In response, Fox said that it would "carefully review" Comcast's unsolicited proposal.

Disney made a US$52.4 billion all-stock bid for Fox, which was accepted in December. Comcast's official counterproposal now pressures Disney to come up with a higher offer for Fox - lest it have compelling entertainment assets slip through its hands at a time when technology giants are storming Hollywood, forcing traditional media companies to bulk up.

In recent weeks, Philadelphia-based Comcast confirmed its desire to outbid Disney in advance of shareholder votes set for July 10. On Wednesday, it filed a proxy statement urging investors to oppose the Disney deal. Fox said that it has not yet made a decision whether to postpone the vote.

Comcast already owns film and TV studios, broadcast and cable TV operations including the NBC and USA networks, and the Universal Studios theme parks.

Both Disney and Comcast could use Fox's TV and movie properties to stream more content directly to consumers and compete with Netflix Inc. The companies also are interested in expanding internationally at a time when the US television business is slowing.

When a federal judge rejected the Justice Department's suit against the Time Warner deal, it was seen as an endorsement of so-called vertical mergers - combinations that include both media distribution and the programming itself.

Comcast also is making an ambitious push in Europe that centres on UK pay TV provider Sky. After Fox made a takeover offer for the 61 per cent stake in Sky that it does not already own, Comcast launched a £22 billion (S$40 billion) counter bid for the business. Disney also is interested in owning Sky.

But Comcast investors have not welcomed the company's sudden appetite for megadeals. Its shares were down 19 per cent this year till Wednesday. If Comcast buys Fox and Sky, the cable giant could become one of America's largest corporate borrowers, and its credit ratings may teeter at the bottom edge of investment grade.

Mr Roberts said on a conference call that he was comfortable with what he called "temporary releveraging". Comcast's board has already unanimously approved the Fox proposal, and no investor vote will be needed. To further sweeten the deal, Comcast plans to reimburse the US$1.5 billion fee that it would have to pay Disney to break up that deal.

The two sides are not vying for all of Fox. Part of the business will be used to create an entity called New Fox, which will include the highly lucrative Fox News, the sports channels FS1 and FS2, and the Fox broadcasting channel. That operation will be run by Mr Lachlan Murdoch and focus on domestic television, news and sports.

The approach is expected to generate more value by splitting up the Murdoch family's far-flung holdings. Fox News alone is estimated to contribute about US$2 billion a year in earnings to the company's bottom line. New Fox also will house Fox Business and local TV stations in nine of the 10 largest metro areas in the US.

Mr Roberts said that he expects the Justice Department to review his proposed takeover plan at the same speed as Disney's deal. And because Comcast has less of a presence outside the US, the company expects that it can get international clearance easily. It also should not need a review by the Federal Communications Commission, Comcast said.

This means that the transaction could close within 12 months of being signed, the cable company said.

"There should not be any meaningful difference in the timing of the US antitrust review between a Comcast and Disney transaction," Mr Roberts said. "We expect to work together to reach an agreement over the next several days." BLOOMBERG