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DOJ lawsuit could lead to piecemeal sale of Fox assets: news analysis


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DOJ lawsuit could lead to piecemeal sale of Fox assets: news analysis

The U.S. Department of Justice's lawsuit to block AT&T Inc.'s purchase of Time Warner Inc. could affect 21st Century Fox Inc.'s own attempts to sell parts of its business. Analysts say a piecemeal sale approach may be the best way for Fox to avoid similar regulatory push back.

Comcast Corp., Verizon Communications Inc. and Sony Pictures Entertainment all have joined Walt Disney Co. in having interest in various Fox properties, according to reports. Specific assets of interest include its stake in Sky plc and the Star network in India, domestic cable networks FX Network (US) and National Geographic Channel (US), as well as its film and TV studio businesses. A winnowing of Fox's properties ultimately could leave the company with its key live content only including sports and news.

"It could be a once in a lifetime opportunity for Fox's unique assets to be up for sale, so it's not surprising that Disney, Comcast, Verizon and Sony are interested. And other companies may kick the tires," said Tuna Amobi, director and senior equity analyst at CFRA Research.

Yet given the uncertain regulatory environment for the media space it is unclear if any transaction will ultimately materialize. The Justice Department filed a lawsuit Nov. 20 seeking to block AT&T's $106.40 billion purchase of cable network owner Time Warner, setting the stage for a historic antitrust legal battle.

Analysts note that the action may have a chilling effect on future mergers and acquisitions.

"With the DOJ taking a stand against vertical mergers, a Comcast bid for 21st Century Fox assets would appear to face a difficult anti-trust review as well," wrote Telsey Advisory Group analyst Tom Eagan in research note. "Actually, with the DOJ seeming to pivot on vertical mergers, they might be looking for other transactions with which to enforce their views. Of course, the ultimate decision could be made by a federal judge. The timing of that is uncertain."

However, if 21st Century Fox sold various assets to the highest bidders in a piecemeal fashion, it may dodge government push back.

"Buying a lot of assets and then having to sell them off to placate the DOJ is inelegant and time-consuming," said Derek Baine, research director and senior analyst at Kagan, a unit of S&P Global Market Intelligence. "Selling them piecemeal could result in any of the deals closing more quickly."

As for Disney, the analysts believe its primary interest is in gaining access to Fox's studio business as a means to fortify its direct-to-consumer, streaming service that is set to launch in 2019.

"Content is even more important to media companies as the industry moves toward direct-to-consumer offerings," said Amobi.

Comcast too could have interest in Fox's film unit, adding another major Hollywood studio to its portfolio, and also paving the way for the addition of Fox-filmed attractions at its theme parks. A purchase could boost Comcast's international business, as well, where it lags others in the media space.

One report indicated that Comcast also would have interest in linking its own regional sports networks with Fox’s leading holdings in that space. But combining those portfolios of RSNs might be problematic for regulators.

"If the RSNs are part of package, you would have to think that would be of some regulatory concern," said Amobi.

Such a move would also remove a key underpinning of what could be the resultant 21st Century Fox, one centered on the broadcast network, its TV stations, FOX News Channel (US) and FOX Business Network (US), FOX Sports national cable and broadcast holdings, and the RSNs.

Michael Nathanson, senior media analyst for MoffettNathanson Research, in a research note said that the prospective deal focuses on a surviving company that would trade on "live" TV fare. Although Nathanson wrote that over time the traditional linear bundle is expected to continue to shed subscribers, those networks offering live news and sports will have a greater share of linear fees. Having so much live TV also has been instrumental for Fox in gaining carriage on all of the virtual multichannel video programming distributors, providing it with affiliate-fee gains.

Nathanson estimates the assets reportedly being considered for divestiture could be valued at $50 billion, while those staying behind could be valued at $45 billion.