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Brewing bidding war between Disney, Comcast raises interest in Fox

Shares in 21st Century Fox Inc. saw movement during the week ended May 11 amid speculation about a potential bidding war between Comcast Corp. and Walt Disney Co. for the Fox's assets.

Fox also during the week cut a deal to buy a handful of Sinclair Broadcast Group Inc.'s TV stations ahead of the broadcaster's pending acquisition of Tribune Media Co.

Reports from Reuters and The Wall Street Journal indicate Comcast is gearing up to make a new bid for Fox's entertainment assets. Fox struck a $52.4 billion-deal to sell the assets to Disney in December 2017 after rejecting an earlier offer from Comcast. Now, Comcast is reportedly lining up financing to launch a hostile all-cash takeover offer that is large enough to tempt Fox shareholders away from Disney. Comcast previously offered stock worth $60 billion-plus for Fox's assets, according to Disney's Form S-4 filed in April.

One key factor in Comcast's pursuit of Fox is the outcome of the AT&T Inc./Time Warner Inc. antitrust trial, which is slated to be decided by mid-June. If the government succeeds in blocking the AT&T/Time Warner deal, analysts believe the Justice Department would try to block a vertical combination of Comcast and Fox. On the other hand, BTIG Research analyst Rich Greenfield said, "Assuming AT&T Time Warner wins against the DoJ in their pending lawsuit (as we believe they will), regulatory risk should not prevent Fox from choosing a superior Comcast offer as long as Comcast is willing to offer a regulatory break-fee that is as large, if not larger than Disney's current $2.5 billion."

Speaking on a May 9 earnings call, 21st Century Fox Executive Co-Chairman Lachlan Murdoch reiterated his expectation for a combination with Disney, saying he would not comment on market speculation.

Fox executives also commented on a recent Comcast-Fox battle over British pay TV giant Sky PLC. Comcast made a £22 billion offer for Sky this month that competes with Fox's earlier announced formal offer of £10.75 per share for the nearly 61% of Sky that Fox does not already own.

21st Century Fox 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 noted that Comcast just began its own regulatory process for its proposed offer, which could take months.

Disney Chairman and CEO Bob Iger did not address Comcast's potential Fox bid on Disney's May 8 earnings call.

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After rising early in the week and then settling, Fox's shares were trading at $37.80 around midday May 11, up 0.36% from their May 4 close. Comcast's stock was trading at $31.70 at 12:05 p.m. ET on May 11, down 0.81% from its May 4 closing price.

Also this week, Fox reached an agreement with Sinclair and Tribune to purchase seven TV stations in key markets. The $910 million transaction, which is expected to close in the second half of the year, would lift Fox Television Stations' coverage to nearly half of all U.S. households, while also facilitating federal approval of Sinclair's pending $4.6 billion purchase of Tribune.

Sinclair's shares were trading at $29.75 midday May 11, up 7.59% from its May 4 closing price. Tribune's stock was trading at $37.53 at 12:05 p.m. ET on May 11, up 3.81% from its May 4 close.

Pandora Media Inc.'s shares soared during the week after the company's quarterly earnings report on May 3. The music streaming service delivered a sizable increase in subscriber revenue during its first quarter ended March 31, posting $104.7 million, up 61% year over year. The company's paid subscribers came to 5.63 million, up about 20% from the year-ago quarter.

Pandora's shares were trading at $7.38 around midday May 11, up 7.11% from their May 4 closing price.

Meanwhile, DISH Network Corp.'s stock tumbled during the week. Though the company has continued to add subscribers to its Sling TV streaming service, it reported a net loss of 185,000 DISH TV satellite video subscribers for its first quarter. "DISH's satellite business has fallen harder and faster than any outside could have predicted," MoffettNathanson analyst Craig Moffett said in a May 8 research report.

DISH's shares were trading at $31.04 around midday May 11, down 7.04% from their May 4 close.