Green Light for AT&T Deal Sets Up Comcast’s Fox Bid, Merger Frenzy

    Rupert Murdoch and Comcast chairman and CEO Brian L. Roberts. Comcast Corp. could place a bid for 21st Century Fox assets as early as Wednesday.

    Rupert Murdoch and Comcast chairman and CEO Brian L. Roberts. Comcast Corp. could place a bid for 21st Century Fox assets as early as Wednesday.


    Photo:

    Reuters; Getty Images

    A court’s approval of

    AT&T
    Inc.’s


    T 0.50%

    merger with

    Time Warner
    Inc.


    TWX 0.05%

    paves a clear path for

    Comcast
    Corp.


    CMCSA 1.19%

    to bid for

    21st Century Fox

    assets as early as Wednesday and could trigger a round of deal-making by smaller media companies trying to keep up with the industry’s titans.

    The AT&T deal, which survived the U.S. Justice Department’s legal challenge, will create a juggernaut with an unprecedented mix of assets spanning TV distribution, cable programming, wireless and broadband.

    Separately,

    Walt Disney
    Co.

    and cable giant Comcast appear headed for a bidding war over Fox assets, including its Hollywood studio and international properties.

    For Comcast, approval of the AT&T deal bolsters its case with Fox that a tie-up between the companies can pass muster with regulators. Comcast is expected to submit an all-cash bid at a substantial premium to Disney’s all-stock $52.4 billion offer, people close to the situation say.

    The AT&T-Time Warner and Fox deals are the sort that media executives hope could give them the best shot to compete in a world where the superpowers of tech, from

    Netflix
    Inc.

    to

    Facebook
    Inc.,

    have disrupted the old ways of doing business and consumers are turning away from the cable TV bundle.

    As the giants get even bigger, there could be a reckoning for smaller U.S. media concerns including

    CBS
    Corp.

    ,

    Viacom
    Inc.,

    Discovery
    Inc.,

    AMC Networks
    Inc.

    and

    Lions Gate Entertainment
    Corp.

    The combined market values of all those companies is around $58 billion, compared with $150 billion for Comcast and around $285 billion for a combined AT&T-Time Warner.

    Media stocks rose in after-hours trading following the decision, as investors anticipate heightened deal activity. Lions Gate and Fox shares rose around 7%, while Disney shares fell more than 1% and Comcast shares declined more than 3% with a bidding war looming ahead over Fox. Netflix shares fell about 1% after the ruling.

    The second-tier of companies will be under pressure to find deals of their own that don’t just increase their exposure to traditional TV, but give them the scale and mix of assets to withstand the industry’s changes, investment bankers and industry analysts say.

    “The floodgates will open,” said Jessica Reif, a veteran media and cable analyst at

    Bank of America

    Merrill Lynch.

    The twin pillars of traditional TV—revenue from cable TV subscriptions and advertising—are under attack. Netflix has pioneered a model selling television directly to consumers, not through the cable bundle. And its willingness to pay staggering premiums for programming and tie-ups with star producers such as Shonda Rhimes is driving up the market for talent.

    From AT&T and Time Warner to the hot pursuit of 21st Century Fox and Sky, media mergers are in full swing. Why now? WSJ’s Amol Sharma answers all your questions about the forces driving media deals. Photo: Getty Images

    Alphabet
    Inc.’s

    Google and Facebook, meanwhile, have revolutionized advertising, channeling large amounts of data on users to target ads at specific groups of people in a way that TV can’t match.

    “The combination of new technologies and new entrants…has changed the competitive dynamic in a dramatic way,” said Jonathan Levitsky, a mergers and acquisitions lawyer at Debevoise & Plimpton who has played a role in several big media deals in recent years. “This cozy ecosystem is under attack, and those changes are what’s driving people’s desire to do deals.”

    Across the media industry, moguls are calculating whether now is the time to exit. 21st Century Fox Executive Chairman

    Rupert Murdoch’s

    decision to sell the Fox assets he had assembled over decades was a powerful signal to many observers that something fundamentally had changed.

    “Some of the most iconic media executives are transitioning right now and that’s a very big deal,” said Jennifer Nason, global chairman of Investment Banking at J.P. Morgan.

    Until relatively recently, mergers between midsize TV network owners seemed like a logical response to upheaval in media. The idea was that bigger programmers could ensure widespread carriage in cable TV packages and extract the highest fees.

    Creation of a Giant

    AT&T spent decades snapping up rivals and neighbors. It’s now the largest U.S. pay-TV provider and second-largest wireless operator by subscribers. Time Warner has both added and shed assets but remains among the biggest players in film and TV.

    Decades of consolidation

    AT&T Corp.

    Born 1877 as the Bell Telephone Co.*

    Lucent and NCR spun off

    AT&T Wireless

    Cingular

    McCaw Cellular

    AT&T

    DirecTV

    Leap

    Wireless

    BellSouth

    Southwestern Bell

    Name changed

    to AT&T

    Pacific Telesis

    Ameritech

    Market cap

    $211B

    $75

    Time Inc./Time Magazine debuts in 1923

    Time Inc. magazine

    division spun off

    Name changed to

    Time Warner Inc.

    AOL spun off

    America Online

    Time Warner

    Becomes

    AOL Time

    Warner

    TBS

    Time Warner Cable

    spun off

    Warner Communications

    created in 1969

    Sells Warner

    Music Group

    ’05

    ’00

    ’95

    ’15

    1985

    ’10

    Pre-1984

    ’90

    Market capitalization, in billions

    AT&T + Time Warner

    Dish

    Network

    $15

    Viacom

    $12

    $20

    CBS

    $69

    $155

    $202

    $824

    $158

    $794

    $149

    $557

    $75

    $286

    Comcast

    Netflix

    Charter

    Disney

    21st

    Century Fox

    Verizon

    Google

    Amazon

    Facebook

    *Bell Atlantic, NYNEX and U.S. West became Verizon

    Decades of consolidation

    AT&T Corp.

    Born 1877 as the Bell Telephone Co.*

    Lucent and NCR spun off

    AT&T Wireless

    Cingular

    McCaw Cellular

    AT&T

    DirecTV

    Leap

    Wireless

    BellSouth

    Southwestern Bell

    Name changed

    to AT&T

    Pacific Telesis

    Ameritech

    $211B

    Market cap

    Time Inc./Time Magazine debuts in 1923

    Time Inc. magazine

    division spun off

    $75

    Name changed to

    Time Warner Inc.

    AOL spun off

    America Online

    Time Warner

    Becomes

    AOL Time

    Warner

    TBS

    Time Warner Cable

    spun off

    Warner Communications

    created in 1969

    Sells Warner

    Music Group

    ’05

    Pre-1984

    1985

    ’15

    ’00

    ’95

    ’90

    ’10

    Market capitalization, in billions

    Dish

    Network

    $15

    AT&T + Time Warner

    Viacom

    $12

    $20

    CBS

    $286

    $557

    $794

    $824

    $202

    $69

    $75

    $149

    $155

    $158

    Charter

    Comcast

    Netflix

    Disney

    Verizon

    21st

    Century Fox

    Facebook

    Amazon

    Google

    *Bell Atlantic, NYNEX and U.S. West became Verizon

    Decades of consolidation

    AT&T Corp.

    Born 1877 as the Bell Telephone Co.*

    Lucent and NCR spun off

    AT&T Wireless

    Cingular

    McCaw Cellular

    AT&T

    DirecTV

    Leap

    Wireless

    BellSouth

    Southwestern Bell

    Name changed

    to AT&T

    Pacific Telesis

    Ameritech

    Market cap

    $211B

    Time Inc. magazine

    division spun off

    $75

    Time Inc./Time Magazine debuts in 1923

    Name changed to

    Time Warner Inc.

    AOL spun off

    America Online

    Time Warner

    Becomes

    AOL Time

    Warner

    Time Warner Cable

    spun off

    TBS

    Warner Communications

    created in 1969

    Sells Warner

    Music Group

    ’15

    ’10

    ’00

    ’05

    ’95

    ’90

    Pre-1984

    1985

    Market capitalization, in billions

    AT&T + Time Warner

    Dish

    Network

    $15

    Viacom

    $12

    $20

    CBS

    $824

    $794

    $75

    $69

    $149

    $155

    $557

    $202

    $286

    $158

    Netflix

    Charter

    Comcast

    21st

    Century Fox

    Verizon

    Disney

    Google

    Facebook

    Amazon

    *Bell Atlantic, NYNEX and U.S. West became Verizon

    Market capitalization, in billions

    Amazon

    $824 billion

    794

    Google

    Facebook

    557

    AT&T +

    Time Warner

    286

    202

    Verizon

    Netflix

    158

    Disney

    155

    Comcast

    149

    21st Century

    Fox

    75

    69

    Charter

    CBS

    20

    15

    Dish Network

    12

    Viacom

    Sources: staff and news reports; FactSet (market caps)

    But those tie-ups may not be enough in a post-cable-bundle world where companies will need greater scale and resources for programming; the technological know-how to create streaming products for a direct relationships with consumers; and data to appeal to advertisers, analysts say.

    Cable tycoon

    John Malone,

    who owns stakes in Discovery, Lions Gate and

    Charter Communications
    Inc.,

    has been advocating for a roll-up of content companies for years. Discovery’s merger this year with HGTV-parent Scripps Networks Interactive was one move in that direction, and Discovery also sought unsuccessfully to acquire beleaguered Spanish-language broadcaster Univision Communications Inc., another likely target.

    Shari Redstone, whose National Amusements Inc. controls CBS and Viacom, has pushed for a merger of those companies. But she is engaged in a legal power struggle with CBS and many of its directors, who oppose the deal and are trying to strip her of voting control.

    Even if the merger happened, it would be unlikely to result in a combined company with enough scale to compete, Bank of America’s Ms. Reif said. Ms. Redstone’s endgame may be to sell the merged company to a bigger player like

    Verizon Communications
    Inc.,

    court documents and people familiar with her thinking have said.

    Time Warner, which owns premier cable brands like HBO and CNN as well as the Warner Bros. studio, fits into AT&T’s plans to go after cable TV cord-cutters and build a robust advertising-sales business. The telecom giant has promised a $15-a-month bundle of channels without sports. And it is banking on data from its wireless arm to help target TV ads at consumers in more sophisticated ways.

    Companies are also eager for international growth with the U.S. pay-TV business in the early stages of a secular decline. In the case of the battle for Fox’s entertainment assets, both Disney and Comcast are eager to acquire Fox’s European, Latin American and Indian businesses—more so than even some domestic assets in the mix like regional sports networks that were once considered valuable.

    Which other buyers could emerge? Two of AT&T’s rivals in the distribution arena—Charter and Verizon—have danced around the idea of buying content companies but have expressed more interest in strengthening their “pipes” through acquisitions.

    Apple
    Inc.,

    Google, Facebook and

    Amazon.com
    Inc.

    are all widely viewed on Wall Street and among media executives as potential acquirers of media assets, partly because of the moves they’ve already made to disrupt traditional TV and film.

    Amazon explored the idea of splitting up the Fox assets with Comcast—whereby Amazon would get the domestic properties and Comcast would get international assets—but the idea didn’t advance so Comcast is proceeding on its own, people familiar with the matter said.

    Apple showed interest in Time Warner—HBO in particular—and considered lobbing in a bid for it before its agreement with AT&T, people familiar with the matter have said.

    Media companies will be on the lookout for partners. “There isn’t a public or private company that isn’t rethinking their assets mix,” Ms. Reif said.

    Write to Shalini Ramachandran at shalini.ramachandran@wsj.com

    Appeared in the June 13, 2018, print edition as ‘Up Next: Comcast’s Move on Fox.’

    This article originally appeared here via Google News