Coverage: Disney in talks to buy most of 21st Century Fox

21st Century Fox has been holding talks to sell most of itself to Walt Disney Co., leaving behind a media company tightly focused on news and sports.

David Faber of CNBC broke the news:

The talks have taken place over the last few weeks and there is no certainty they will lead to a deal. The two sides are not currently talking at this very moment, but given the on again, off again nature of the talks, they could be revisited.

For Fox, the willingness to engage in sale talks with Disney stems from a growing belief among its senior management that scale in media is of immediate importance and there is not a path to gain that scale in entertainment through acquisition. The company is said to believe that a more tightly focused group of properties around news and sports could compete more effectively in the current marketplace.

The media landscape has changed considerably in recent years with giants such as Facebook, Google (Alphabet), Amazon and Netflix changing the way people consume media and dominating the digital distribution of digital video content. Being able to compete in that changing landscape, many people believe, requires scale that a Disney has, but 21st Century Fox does not.

For Disney, the opportunity to take control of another movie studio and significant TV production assets as it readies a direct-to-consumer entertainment streaming offering is attractive as is Fox’s significant exposure to international markets, such as the U.K., Germany and Italy — both through its networks and 39 percent ownership of Sky.

Tara Lachapelle of Bloomberg Gadfly reported that such a deal faces hurdles:

Ratings for Fox’s cable networks, such as FX and National Geographic, have also been slipping, but if it’s scale Disney is after as it plunges into online services, then I suppose this would do it. Disney also has a clean balance sheet to make a large transaction like this possible. Its Ebitda from the past 12 months pretty much covers its net debt.

Given that Disney CEO Bob Iger is set to retire in July 2019, I’m surprised that he would consider such a large takeover now. I’ve explained before that the more unwieldy Disney becomes, the more challenging it will be to find a successor that can manage Disney’s studios, theme parks and consumer businesses on top of ratings-challenged TV networks and a new online-entertainment strategy. A breakup, to me at least, had seemed the more obvious route.

As for Fox, it seems the younger Murdochs — CEO James and his brother Lachlan, who now shares the chairman role with their 86-year-old father — are looking to focus in on Fox’s most profitable and prized businesses in response to the changing landscape that’s left them with few remaining deal options. Time Warner Inc., which snubbed an offer from Fox three years ago, is now being acquired by AT&T Inc. (Sumner Redstone’s CBS Corp. had also studied a merger with Time Warner a couple of years ago.)

Paul Bond and Georg Szalai of The Hollywood Reporter reported, however, that a deal makes sense for Disney:

For Disney, the benefits are obvious as it readies its streaming subscription service that is meant to rival Netflix. For now, it will contain Pixar- and Disney-branded TV shows and movies as well as Star Wars and Marvel content. Disney owns Marvel but Fox has rights to some of the characters, like X-Men, and the Twitterverse is already lighting up at the possibility of reuniting the superheroes.

The benefits are a bit less obvious for 21st Century Fox, as Rupert Murdoch isn’t known for scaling back his media ambitions. But sports and news, plus retaining the Fox broadcast network while not having to compete as much with a growing stable of content creators, like Netflix, Amazon.com, YouTube, Facebook and others, could appeal to him, especially as his empire could still expand overseas. Plus, he also controls News Corp., parent of The Wall Street Journal and other publications, and re-merging a scaled-back 21st Century Fox with News Corp could be an option, as well.

Co-executive chairman Lachlan Murdoch even hinted at the notion of focusing more on sports via FS1 and news via the Fox News Channel and Fox Business Network, all of which would be retained if a deal with Disney is to happen, insiders say.