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21st Century Fox execs reiterate commitment to Disney asset deal

While media and investment communities contemplate the prospects of a Comcast Corp. challenge to Walt Disney Co.’s bid to purchase assets from 21st Century Fox Inc., Fox executives on a May 9 earnings call reiterated their expectations for a combination with Disney.

Executive co-Chairman Lachlan Murdoch told analysts that it would not comment on market speculation and then directed listeners to the joint preliminary filing it made with Disney three weeks prior.

"Once finalized and cleared by the [Securities and Exchange Commission], we anticipate being in a position this summer to refresh shareholder approval for both the merger with Disney and the creation of the New Fox," he said. Planning for "New Fox" is well underway, and executives pointed to the addition of the NFL’s "Thursday Night Football" package and today’s deal to acquire seven stations from Sinclair Broadcast Group Inc. and Tribune Media Co. as parts of the strategy.

Pressed about whether the company was still open to competing offers from third parties, Murdoch reiterated, "We're not going to ... engage in speculation around this. But I can say that we are committed to our agreement with Disney and are working through the conditions to bring it to closing. In addition, our directors, though, of course, are aware of their fiduciary duties on behalf of all shareholders."

As to Sky PLC, for which Comcast made a £22 billion offer, 21st Century CEO James Murdoch said the company remains committed to "our bid to buy the remaining Sky shares we do not own and expect to receive U.K. regulatory approval in a month or two."

He added that Comcast recently began its own regulatory process, which could take months. The CEO said further announcements and updates would be made "in due course."

On the affiliate front, CFO John Nallen said that Fox properties continue to record gains with virtual providers, with the company counting "a good bit over 4 million digital MVPD customers" following the close of the fiscal third quarter. He said "so-called cord-nevers" were acquiring bundles from the new entrants, particularly YouTube TV and Hulu LLC's Hulu with Live TV.

Revenue for the third fiscal quarter ended March 31 was $7.42 billion, off 1.9% from $7.56 billion in the comparable period in fiscal 2017.

The decline was largely due to the television segment results, which were impacted by the NFL. The prior-year period included FOX’s coverage of Super Bowl LI, while the March quarter reflected lower ratings and three fewer NFL telecasts, which more than offset double-digit retransmission-consent fee growth and improved entertainment contributions. Segment operating income before depreciation and amortization declined to $78 million from $190 million, with revenue receding 32% to $1.15 billion.

At the cable network programming segment, OIBDA jumped 16% to $1.68 billion, lifted by a 10% rise in revenues to $4.42 billion from higher affiliate, syndication and advertising revenues. That was partially offset by a 6% increase in expenses, related largely to the first year of sublicensed Big Ten rights and higher sports and entertainment programming costs at Fox Networks Group International.

Domestic affiliate revenue grew at a 10% rate, bolstered by contractual rate increases across all brands, while U.S. ad revenues increased 3% behind higher pricing at FOX News Channel (US), partially offset by fewer original episodes at FX Network (US). Domestic OIBDA contributions increased 15% over the prior-year quarter, reflecting growth across its brands.

Internationally, segment OIBDA rose 23% as contributions at STAR India more than doubled, countered by lower contributions from FNGI. International affiliate revenue increased 14%, and ad revenue dipped 1%.

Revenue at the filmed entertainment segment dipped 1% to $2.24 billion, but OIBDA fell 23% to $286 million. The unit’s results reflected lower contributions from the TV production business due to higher deficits on increased series production, as well as costs supporting the release of the mobile game "Marvel Strike Force."

The company reported lower-than-expected EPS in its fiscal third quarter, with net income attributable to shareholders of $858.0 million, or 46 cents per share. Attributable net income rose 7.4% from $799.0 million, or 43 cents per share, in the prior-year period.

The S&P Capital IQ consensus EPS estimate for the just-ended quarter was 53 cents on both GAAP and normalized basis