21st Century Fox has said that a deal with Comcast would carry more regulatory risk than one with Disney, even in the wake of the failed US Department of Justice attempt to block the merger of AT&T and Time Warner.
In an SEC filing that outlined 21st Century Fox’s board’s reasons for recommending Disney’s revised offer, the company said that its management committee and legal advisers Cleary had come to the conclusion that “while a potential Disney transaction was likely to receive required regulatory approvals and ultimately be consummated, a strategic transaction with Comcast continued to carry higher regulatory risk leading to the possibility of significant delay in the receipt of merger consideration as well as the risk of an inability to consummate the transactions”.
Fox said that the key considerations were Disney’s mix of businesses, the progress already make in securing Department of Justice approval under the original merger agreement , progress made with other regulatory submissions and the improved level of regulatory effort to which Disney had committed in its updated proposal.
Regarding Comcast, the Fox board said that risk factors included “ the DOJ’s apparent sensitivity to the potential anticompetitive effects of vertical integration and rejection of behavioural remedies before and after the litigation with respect to the AT&T/Time Warner transaction” and pointed out that the court had not rejected the DoJ’s case “as a matter of law” but because the evidence was insufficient.
It said risks also arose from Comcast’s share of certain markets and the strength in its broadband business, its previously acquisition of NBCUniversal, Fox’s “own prior regulatory submissions” in relation to Comcast’s proposed acquisition of Time Warner Cable and the AT&T/Time Warner deal, the forthcoming expiration of the 2011 consent decree regarding Comcast’s acquisition of NBC Universal and the end of net neutrality.
Further factors that could weigh against Comcast securing antitrust approval, said Fox, include the prospect of Comcast securing a controlling interest in Hulu, which competes with its own core business, and Comcast’s ownership of US regional sports networks.
It also said that Comcast’s willingness to take on regulatory risk did not provide for enhanced protections that would match the higher regulatory risk of a Comcast deal.
Fox admitted that Comcast’s separate offer for pay TV operator Sky “may make it more difficult for 21CF to obtain the requisite approval of Sky shareholders unaffiliated for 21CF for the Sky acquisition” and that a failure to complete the Sky acquisition would mea that ‘New Disney’s’ business “could be adversely affected”. The company said that it “remains committed to the Sky acquisition and is currently considering its options”.