What's the Next For the Potential Disney-Fox Deal?

Characterized by one analyst as a "knockout punch," The Walt Disney Co.'s staggering $71 billion counter-offer on Wednesday pleased 21st Century Fox's board of directors and seemingly staggered rival Comcast Corp., but that's not the end of the story for a potential merger with global business ramifications.

Fox amended its original December 2017 merger agreement with Disney to reflect this new offer, and decreed it "superior" to Comcast's unsolicited $65 billion all-cash bid. However, that doesn't necessarily push the telecommunications conglomerate out of the running for assets that include FX Networks, National Geographic, a 30-percent stake in Hulu, a 31.9-percent interest in U.K. pay-TV and broadband provider Sky, and the 20th Century Fox film and television production studios, which are accompanied by the rights for the X-Men, Fantastic Four, Deadpool and Avatar, among other properties.

So, where does the tug of war over Fox go from here?

Fox's Stockholder Meeting

Disney's new offer, a combination of cash and stock, is a $19 billion increase from its opening salvo, and trumps Comcast's bid by $6 billion. It signals the entertainment giant's intense interest in the Fox assets, of course, but also CEO Bob Iger's eagerness to bring to an end this back and forth. After all, Disney and Fox have been working on this merger, officially, for six months. “Disney is going for the knockout punch, and they just may have delivered it,” investment banker Lloyd Greif told the Los Angeles Times about the counter-offer.

But Fox still has to convene a special meeting of shareholders to consider the merger agreement, which is now even more appealing, as stockholders can elect to receive cash as well as Disney shares. The Murdoch family, which sits atop the Fox throne, would end up with a sizeable stake in Disney, with Fox shareholders owning about 19 percent of the media giant. A meeting previously scheduled for July 10 to consider Disney's original proposal has been postponed so shareholders may better consider the current offer. In the meantime, however, Fox said in a statement that the company's directors aren't prohibited from evaluating "a competing proposal."

A Potential Response From Comcast

Comcast, which already owns NBC and Universal Pictures, among other assets, is expected to return to the table with another bid, and is reportedly looking for ways to line up additional financing without harming its credit rating. However, Moody's has warned a downgrade is still possible. Disney runs a similar risk.

Even if the telecommunications giant were to emerge from the bidding war successful, with Fox shareholders agreeing to the merger, it will have amassed estimated debts of $170 billion.

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Regulatory Hurdles

The world's second-largest broadcast and cable television company, Comcast waited until a federal judge approved AT&T’s $85.4 billion purchase of Time Warner before entering the ring with Disney, figuring that was a sign it could maneuver similar antitrust obstacles in an acquisition of 21st Century Fox. However, U.S. District Court Judge Richard Leon cautioned that his decision applied only to the case of AT&T and Time Warner, and shouldn't be interpreted as sign of a shifting regulatory environment.

While any acquisition of Fox would occur only after the Murdochs spin off the Fox Broadcasting network and local stations, Fox News, Fox Business Network, FS1, FS2 and Big Ten Network into a new company, called New Fox, the family has reportedly worried a Comcast deal wouldn't pass federal muster. The remaining package of assets would include U.S. cable networks, regional sports channels, and such international properties as Star India and a 39-percent stake in Sky PLC, some of which would likely have to be shed by either Comcast or Disney before a merger could be approved.

The big concern is Comcast, with its ability to distribute content through its pay-TV and broadband provider Xfinity -- it controls 40 percent of the U.S. broadband market -- would raise alarms at the Justice Department, which unsuccessfully opposed the AT&T-Time Warner deal. Disney also faces potential antitrust scrutiny, in the United States and around the globe, in no small part because of the major film studios involved. However, the company is already six months into the regulatory process and, according to Bloomberg could receive Justice Department approval for the Fox deal in as soon as two weeks.

What's So Appealing About Fox, Anyway?

Content, content, content. Although comics fans are keenly interested in a Disney-Fox merger because it holds the promise of bringing the X-Men, Fantastic Four and Deadpool into the Marvel Cinematic Universe, such major properties as The Simpsons, Avatar and Planet of the Apes are also in play. However, Disney, which plans to launch its own branded streaming platform next year, is wary of increasing competition from the likes Amazon and Netflix, the latter of which is spending $8 billion on content this year alone.

Ownership of Fox would drastically increase Disney's library and, in the Los Angeles Times' estimations, double the size of its film and television production capabilities. Disney and Comcast each also holds a 30 percent stake in Hulu, so Fox's share would give the winner of the bidding war controlling interest in that digital streaming service. Disney and Comcast are both eyeing Fox's international properties to bolster their presence overseas.