As Comcast Corp. prepares a bid for key 21st Century Fox Inc. media assets, legal experts say the cable giant must weigh the potential advantages of expanding its content portfolio against the risks of inciting regulatory ire — risks that could include endangering its ownership of NBCUniversal Media LLC.
Comcast confirmed May 23 that it is in advanced stages of preparing an offer for the businesses Fox previously agreed to sell to Walt Disney Co. But given Comcast's existing control over NBCUniversal, as well as the ongoing regulatory and legal battle over AT&T Inc.'s similar deal for Time Warner Inc., winning regulatory approval for such a combination will not be easy and may come with a heavy cost.
Legal experts and analysts agree that a major question mark hanging over Comcast's potential offer is the outcome of the antitrust case against AT&T's Time Warner deal, which is set to be decided by June 12.
Peter Carstensen, a professor emeritus at the University of Wisconsin Law School who previously served as an attorney at the antitrust division of the U.S. Department of Justice, said that if the government wins its case to block the AT&T/Time Warner transaction, then any deal between Comcast and Fox is dead.
But Daniel Ives, chief strategy officer and head of technology research at GBH Insights, said he believes Comcast will proceed with its offer regardless of how the AT&T/Time Warner case plays out. He explained that while the current antitrust case will offer "tea leaves" as to how the Justice Department will react to a Comcast/Fox combination, "based on the fact that Comcast has announced they are in advanced stages, at this point I'd be surprised if they didn't go ahead."
There may be a significant risk to Comcast moving forward on its offer for Fox, however. Specifically, Carstensen said if a Comcast/Fox deal goes forward and is ultimately challenged by the Justice Department, the DOJ could seek a structural remedy that would not only block Comcast from combining with Fox but would also require Comcast to divest NBCUniversal. Carstensen noted that the DOJ did something similar in the 1960s when the maker of Schlitz beer, Jos. Schlitz Brewing Co., bought Burgermeister Brewing Corp. in 1961 and then tried to take control of Lucky Lager just a few years later through a stock purchase.
While the Justice Department had not initially challenged the Burgermeister deal, it did successfully sue to block the stock transaction for Lucky Lager. And as part of that case, the court also forced Schlitz to divest the Burgermeister assets acquired five years earlier.
"[Schlitz] tried a second merger and the government said, 'Hey, we don't like that merger, and we have now reconsidered our enthusiasm for your first merger,'" Carstensen said. He added that for Comcast/NBCUniversal, "The DOJ can say, 'Comcast, not only are we opposed to this [Fox] merger, but we want you to divest NBC as well."
Notably, this idea of breaking up Comcast and NBC is one that President Donald Trump floated in 2016 on the campaign trail. Speaking in Gettysburg, Pa., Trump said his administration would block the AT&T/Time Warner transaction because "it's too much concentration of power in the hands of too few." He then compared it to Comcast's purchase of NBCUniversal, saying, "Deals like this destroy democracy, and we'll look at breaking that deal up."
Given the legal precedent and Trump's past statements, Carstensen said, "Even if the judge decides AT&T/Time Warner favorably, I think Comcast might want to take a long, close look at whether they really want to do this."
Some analysts, meanwhile, say that either combination for Fox — Disney's existing bid or Comcast's potential bid — is likely to face regulatory hurdles. The question, then, is which combination has the best chance of success.
For BTIG Research analyst Rich Greenfield, the answer might be a deal with Comcast, depending on whether the cable giant is willing to offer its own structural remedy.
"If Comcast were willing to split the company into two parts … we believe there would be no major regulatory concerns," Greenfield wrote in a research note. He explained Comcast's cable business would add the British pay TV giant Sky PLC through the deal, whereas NBCUniversal would take control of 20th Century Fox studio, the FX networks, National Geographic Channel (US) and the Fox international channels.
"Yet even without splitting the company into two companies, Comcast appears to have more obvious structural remedies than Disney," Greenfield continued, citing the possibility of at least spinning off the sports networks the companies own. By contrast, the analyst said any structural remedies for a Disney/Fox tie-up would "likely negate the reason for the transaction."
Disney previously has cited the addition of Fox's sports properties as one of the primary drivers behind its bid, as they would complement the vast national sports holdings of its ESPN (US) network.
