Disney's US$71b Fox bid wins backing from ISS, Glass Lewis

[LOS ANGELES] Walt Disney Co's US$71 billion deal with 21st Century Fox Inc won the endorsement of influential proxy advisers Institutional Shareholder Services Inc and Glass Lewis & Co, giving the entertainment giant another edge over rival suitor Comcast Corp.

Both firms recommended that Fox shareholders vote in favor of the transaction during a July 27 investor meeting, with Glass Lewis arguing that Disney offered "a unique, prospectively far-reaching opportunity" to capitalise on the acquisition. Disney is vying with Comcast to acquire a prized collection of Fox entertainment assets that includes the 20th Century Fox film and TV studios.

Disney increased its bid for the entertainment properties last month by about US$10 a share to US$38, countering a US$35 offer by Comcast.

"The current offer represents compelling value," ISS said in a report.

Disney is locked in a three-way battle to divvy up the assets of 87-year-old media mogul Rupert Murdoch. In addition to pursuing the entertainment properties, Comcast is vying with the companies for control of UK's Sky Plc, which is partially owned by Fox. Comcast, the largest US cable company, may decide to pursue Sky in lieu of continuing to try acquire the Fox assets.

In backing Disney's bid, Glass Lewis said the company may be better positioned to compete in a crowded industry upended by new digital players like Netflix Inc. Some Fox businesses, like Fox News Channel, will be spun off into a new company. And Disney plans to sell 22 regional sports networks to address regulatory concerns.

Fox's initial negotiations with Disney, which led to a US$52 billion deal in December, was "suboptimal", ISS said in its report.

"The company's apparent preference towards a deal with Disney clearly failed to extract maximum value for shareholders," the firm said. But Disney's sweetened offer is now worth supporting, ISS said.

Both ISS and Glass Lewis suggested that Fox shareholders support all the meeting's proposed resolutions except one -- a series of golden-parachute payouts.

The US government added another wrinkle to the M&A saga on Thursday. The Justice Department decided to appeal AT&T Inc's takeover of Time Warner Inc, a move that could signal it would look more critically on Comcast's efforts to acquire the Fox assets. Craig Moffett, an analyst at MoffettNathanson, described it as the "final nail in the coffin" for Comcast's Fox chase. "This is a clear gift to Disney," he said.

Comcast launched its offer of £14.75-a-share bid this week for Sky, the UK pay-TV provider. If Disney allows Fox to increase its separate bid for Sky, it's possible that British regulators could decide to start a formal auction process that would provide a timetable to complete the takeover.

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