21st Century Fox Agrees to Higher Offer From Disney

 Disney CEO Bob Iger with Fox’s Rupert Murdoch in a picture distributed by Disney in December, around the time a deal between the two companies was first announced. Photo: Disney

Disney to pay more and add a cash component; Fox calls pact superior to Comcast’s bid

by Keach Hagey and Erich Schwartzel

Walt Disney Co. DIS 0.99% raised its offer to purchase most of 21st Century Fox FOX 7.25% to more than $71.3 billion in cash and stock, topping an unsolicited offer from rival Comcast Corp. CMCSA 1.77% and escalating the bidding war for the coveted media properties.

Disney’s new offer is far higher than its original deal, $52.4 billion in stock, and surpasses Comcast’s all-cash offer of roughly $65 billion. In addition to having the higher offer, Disney said it also has the regulatory advantage over Comcast in winning a company to help it fight back against new-media competitors like Netflix Inc.

Fox, in a news release, said the new Disney deal “is superior to the proposal” made by Comcast earlier this month. A Comcast spokeswoman had no immediate comment
Disney and Comcast are battling for prized media assets including the Twentieth Century Fox film and TV studio; U.S. cable networks FX and regional sports channels; international assets such as Sky PLC and Star India; and Fox’s one-third stake in the streaming service Hulu.

Fox and Disney were negotiating terms of an amended agreement over the weekend and had the outlines of a deal by Tuesday, though they were nailing down details like the mix of cash and stock, a person close to the situation said.

Disney submitted its bid Wednesday ahead of a Fox board meeting in London, another person familiar with the situation said. Fox Executive Chairman Rupert Murdoch and Disney Chief Executive Bob Iger met to discuss the new pact.

Disney agreed to pay Fox shareholders roughly 50% in cash and 50% in stock. If the current deal closes, Fox shareholders would own 19% of the combined company, compared with 25% under the old deal.

Some observers have said it might make sense for Disney and Comcast to divide the Fox assets among them, but Mr. Iger said that idea is a nonstarter. “We have an agreement in place with [Fox] that precludes that,” he said on a conference call Wednesday.

Disney also has time on its side, Mr. Iger said, because the company’s deal with Fox has undergone several months of regulatory review. “We believe that we have a much better opportunity, both in terms of approval and the timing of that approval, than Comcast does,” he said.

The CEO also highlighted how Fox’s programming would boost his company’s efforts to launch a Disney-branded streaming service next year and directly compete with Netflix. “Direct-to-consumer distribution has become an even more compelling proposition in the six months since we announced the deal. The consumer is voting—loudly,” he said.

Content Creation

As tech firms have increasingly plowed money into original content, Hollywood has been scrambling to keep up

*Compound annual growth rate †Assumes 60% of FOX’s TV and cable content spending in the pro-forma Disney company, as well as 100% of 20th Century Fox and 100% of Hulu. Note: Production and programming costs are estimated based on company documents, reported operating expenses associated with marketing and overhead and proxy-based calculations.

Source: RBC Capital Markets; Graphic by Hanna Sender / The Wall Street Journal.

The fight for Fox is part of a scramble by media, telecom and cable companies to get bigger as the superpowers of the technology industry have disrupted old ways of doing business.

Neither proposed deal includes Fox News, Fox Sports 1, the Fox broadcast network or its television stations. In either scenario, those assets would be spun off into a new company, for the moment dubbed “New Fox.”

On a per-share basis, the new Disney deal values the Fox assets being acquired at $38 a share, compared with Comcast’s offer of $35 and Disney’s original offer of $29.54, based on the last trading day before it was announced.

The fight for Fox is part of a scramble by media, telecom and cable companies to get bigger as the superpowers of the technology industry have disrupted old ways of doing business.

Neither proposed deal includes Fox News, Fox Sports 1, the Fox broadcast network or its television stations. In either scenario, those assets would be spun off into a new company, for the moment dubbed “New Fox.”

On a per-share basis, the new Disney deal values the Fox assets being acquired at $38 a share, compared with Comcast’s offer of $35 and Disney’s original offer of $29.54, based on the last trading day before it was announced.

On Wednesday, Fox’s class A shares rose 7.5% to $48.08, and Comcast shares added 1.8% to $33.39.

Disney shareholders didn’t appear to mind stomaching the higher price as the stock rose 1% to $107.15, but some analysts said the move was foolish. “We didn’t like the deal at the prior price, and we like it substantially less now,” said Doug Creutz of Cowen & Co. The analyst said a Disney-Fox tie-up isn’t the way to win the direct-to-consumer fight.

A continuing bidding war between Disney and Comcast could be a strain on both companies’ balance sheets. Disney Chief Financial Officer Christine McCarthy said the company no longer expects to complete a $20 billion share repurchase announced with the initial deal in December.

Fox’s board and shareholders have had to weigh a number of factors as they measure the offers, including their structure. More stock in the deal has tax advantages for shareholders.

These tax advantages might be particularly large for Fox shareholders, such as the Murdoch family, who have held Fox’s stock for a long time and thus face a potentially large capital gain to pay taxes on if it is sold for cash. Rupert Murdoch and his family have a 17% economic interest in 21st Century Fox. 21st Century Fox and Wall Street Journal-parent News Corp share common ownership.

Disney said the stock part of the deal is expected to be tax-free to 21st Century Fox shareholders.

Other shareholders, particularly the large institutional shareholders that are Fox’s biggest investors, may care less about taxes.

People close to Fox have said that the Murdochs are looking for the best financial deal and are working in the best interests of all shareholders.

As a result of the new Disney offer, Fox postponed the special meeting of shareholders it had originally scheduled on July 10 to “a future date.”

Disney’s offer puts a “collar” on the stock portion, saying Fox shareholders would receive Disney shares equal to the $38 price so long as Disney’s stock price is between $93.53 and $114.32.

Regulatory hurdles have been a consideration. The Justice Department would have to sign off on either deal, and Fox cited regulatory concerns among its reasons for rebuffing Comcast’s initial approach.

However, last week, a judge struck down the Justice Department’s attempt to block AT&T ’s acquisition of Time Warner Inc. Comcast believes the court’s approval of a “vertical” merger between a distributor and a content company should nullify Fox’s regulatory concerns, since a Comcast-Fox tie-up would have similar characteristics, people close to the cable giant say.

Mr. Iger said Wednesday that he still believed a “vertical” merger of the kind Comcast proposed for the Fox assets faced regulatory headwinds.

—Austen Hufford and Dana Mattioli contributed to this article.