Suitors Line Up For Fox Assets -- WSJ

11/17/17 02:47 AM EST
By Dana Mattioli, Keach Hagey and Ryan Knutson 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 17, 2017).

New suitors are circling 21st Century Fox Inc., affirming that the media empire built by Rupert Murdoch is now in play.

Comcast Corp. has approached the media company to express interest in buying a substantial piece of it, according to people familiar with the situation. Verizon Communications Inc. is also kicking the tires on Fox assets, though a person familiar with its thinking cautioned the exploration was in the early stages. And Sony Corp.'s entertainment unit has also informally approached Fox, the people familiar with the situation said.

The takeover interest in 21st Century Fox gained steam after news last week that Walt Disney Co. recently held talks with the company but failed to reach a deal.

The assets Fox is discussing with potential suitors include the Twentieth Century Fox studio, some U.S. cable networks and the international business. Fox News, the Fox broadcast network and the company's sports channels haven't been part of the talks, the people familiar with the situation said.

Any deal would be sizable. 21st Century Fox has a market capitalization of about $54 billion. Fox's shares rose 8.1% after hours on Thursday, after The Wall Street Journal reported the interest from Comcast and Verizon.

21st Century Fox and the Journal's parent, News Corp, share common ownership.

It is uncertain how regulators would receive a combination involving a large player like Comcast or Verizon with 21st Century Fox. AT&T Inc.'s pending takeover of Time Warner Inc., which would result in a behemoth spanning distribution and content, has run into resistance in Washington, and could be headed for a court battle.

The interest in Fox is part of a broader wave of consolidation sweeping through the media industry as the pace of cable-TV cord-cutting accelerates and new players like Netflix Inc. and Amazon.com Inc. have quickly ascended to dominant positions.

At the same time, a series of mergers has bulked up distributors like Charter Communications, AT&T and Comcast, weakening the leverage that media companies have to get their channels distributed at a good price.

Fox may be more receptive to offers after its shares underperformed some media competitors in recent years. While content creators and distributors have been consolidating, some of Fox's pursuits have been thwarted. Fox saw the need for greater scale three years ago and attempted to buy Time Warner Inc., but was ultimately rebuffed and backed off after its stock price sank. Last year, in yet another bid for greater scale, it announced its intention to buy the rest of Sky beyond the 39% it already owns.

Comcast has weathered the storms in pay TV better than peers in recent years, but has begun to feel the pinch. In its most recent quarter, it suffered its largest quarterly loss of cable subscribers in three years. Comcast is particularly interested in Fox's international assets, one of the people familiar with the situation said. As the U.S. pay-TV market saturates, other countries where penetration of cable services is lower can offer more growth.

The notion that Comcast would make a large bet on more media content in this environment is especially surprising. The cable company acquired NBCUniversal in 2011, integrating a host of cable TV networks, the NBC broadcast network and the Universal studio. And one reason antitrust enforcers are skeptical about the AT&T deal is that they believe Comcast hasn't lived up to the spirit of the conditions regulators put on that 2011 deal, people familiar with the matter have said.

For Verizon, a deal with Fox would help it expand its digital-media business, which as of now is driven by the combination of AOL and Yahoo, both of which it acquired. Verizon is looking to build a cache of websites and online video services it can sell advertising against.

The wireless carrier has frequently expressed skepticism about the legacy television business model, but has aggressively sought to build new video businesses based around mobile video.

Verizon may face slightly less antitrust scrutiny than some of its rivals. Unlike Comcast and AT&T, which have millions of pay-TV subscribers, Verizon only has 4.6 million TV customers, who are all concentrated in the northeastern U.S. Verizon Wireless is the nation's largest cell carrier, with more than 115 million subscribers, but there is no established model for bundling television and cellular services like there is in the cable industry.

Reports last week of Fox's discussions with Disney signaled a new willingness from the Murdoch family to consider a restructuring of its media empire, a move that shocked the industry and effectively put Fox on the block.

Entertainment assets like those owned by Fox are rarely available for purchase, and are expensive and time-consuming to create from the ground up. Mr. Murdoch invested heavily to build and piece together his company over the course of decades.

Over the past week, Fox has hosted both its quarterly earnings call and its annual shareholder meeting. While executives have declined to address acquisition-related questions, they have taken the opportunity to emphasize Fox's ability to compete with its current set of assets.

"There's a lot of talk about the growing importance of scale in the media industry," 21st Century Fox Executive Co-Chairman Lachlan Murdoch said at the annual meeting Wednesday. "Subscale players are finding it difficult to leverage their position into new and emerging video platforms, but let me be very clear: We are not in that category."

One of Fox's international assets that has drawn particular interest is U.K. pay-TV company Sky. Fox already owns a 39% stake in Sky, but its bid to acquire the rest of the company has faced delays in the U.K. since the approximately $15 billion bid was announced a year ago. Fox has continued to express confidence that the deal will close by mid-2018.

Fox has said its international holdings help it reach more than one billion subscribers in roughly 50 languages in more than 170 countries.

Fox's movie and television studio has been a mixed bag. Fox is one of the most prolific producers of scripted shows, providing programming for its own channels as well as selling shows like "Modern Family" and "This Is Us" to other networks and digital platforms. The Twentieth Century Fox film studio's performance has been more erratic, ranking everywhere from first to sixth in domestic box-office sales since 2011, according to Box Office Mojo.

Some of Fox's entertainment networks have also been eyed by the potential acquirers. The cable network FX is a critical darling and some of its shows command top dollar in rerun rights from Netflix. National Geographic Channel has been spending heavily on original content but so far the effort hasn't paid off in higher ratings.

Selling off some assets could slim the Fox global conglomerate down to a leaner media company focused on broadcast TV, cable news and sports programming, which theoretically could command a higher valuation. The thinking at Fox, according to a person familiar with the matter, is that the company could be successful with a makeup similar to CBS Corp., which has a higher valuation even though it isn't one of the largest U.S. media conglomerates.

Joe Flint and Lukas I. Alpert contributed to this article.

Write to Dana Mattioli at dana.mattioli@wsj.com, Keach Hagey at keach.hagey@wsj.com and Ryan Knutson at ryan.knutson@wsj.com

 

(END) Dow Jones Newswires

November 17, 2017 02:47 ET (07:47 GMT)

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