The U.S. Department of Justice on Wednesday approved Walt Disney's partial merger with 21st Century Fox, but said Disney must sell Fox's regional sports networks as those, coupled with ESPN, could form a monopoly in sports broadcasting.
Disney, which agreed to the DOJ's stipulation, will pay $38 per share in cash and stock for most of the assets of Fox for a total consideration of about $71.3 billion, though Comcast is not out of the running quite yet as it could still top Disney's offer.
Shares of Fox rose 2 percent on the news to $48.59 giving Rupert Murdoch's company a market capitalization of $89.6 billion, meaning that Wall Street values the portion Disney will not be purchasing at $18.3 billion.
Those assets, which include the Fox News Channel, Fox Business Network, the Fox broadcast network, FS1 and FS2, are, for now, called New Fox.
The portion of the company that Disney — and Comcast — are trying to purchase include the TV and movie studio, Star India, FX, Nat Geo, Fox's 30 percent share of Hulu and Fox's 39 percent stake in Sky, the European satellite TV company.
Disney had already signaled in an SEC filing it might be willing to sell Fox's 22 RSNs, which generate roughly $1 billion in annual adjusted earnings, should regulators balk at combining those with ESPN, the nation's dominant sports network with 88 million subscribers.
“American consumers have benefitted from head-to-head competition between Disney and Fox’s cable sports programming that ultimately has prevented cable television subscription prices from rising even higher,” said Assistant Attorney General Makan Delrahim.
"Today’s settlement will ensure that sports programming competition is preserved in the local markets where Disney and Fox compete for cable and satellite distribution,” he said.
But even if Comcast doesn't counter with a better offer, the Disney-Fox partial merger is a long ways from completion, as it has more regulatory hurdles to clear, including from other countries.
Disney originally offered $52.4 billion in stock for the Fox assets and Comcast topped that with $65 billion in cash before Disney again upped it to $71.3 billion.
After the DOJ acted on Wednesday, Fox CEO James Murdoch and co-executive chairman Lachlan Murdoch sent the following memo to employees:
Today the Antitrust Division of the U.S. Department of Justice cleared the pending Disney transaction. This decision is a big step forward towards the completion of our Disney transaction and the creation of new “Fox.”
The Department of Justice announced today that it has entered into a consent decree with Disney and 21st Century Fox that allows the acquisition to proceed, while requiring the sale of the Fox Regional Sports Networks within 90 days following the close of the Disney transaction. However, there are still other conditions to closing, including stockholder approval and additional regulatory approvals outside the U.S. At this point we anticipate that the Disney transaction and the creation of new “Fox” will be completed within 6-12 months.
We realize the Department of Justice’s decision will reshape the future course of our regional sports businesses and add uncertainty for our colleagues across the RSNs. Our RSNs are an incredibly strong asset offering television’s most valuable content and we are confident that whatever the outcome, the future of our regional sports business will continue to be incredibly bright.
Thank you again for your patience and understanding during this time of change. We will continue to communicate key events as they unfold.
Lachlan and James