Will Disney and Fox Cede Sky to Comcast?

Regulators have given greenlight to both Comcast and Fox bids for Sky

The European Commission, the executive arm of the European Union, has cleared Comcast (CMCSA) to proceed with its plans to acquire European broadcaster Sky. Comcast is competing with Twenty-First Century Fox (FOXA) (FOX) to acquire Sky. Both have received regulatory approval for their proposals to buy Sky.

Fox is getting help from Walt Disney (DIS) in its efforts to buy the 61% of Sky it doesn’t already own. Disney agreed to buy Sky’s news business to help Fox address regulatory concerns in the UK that the Murdoch family would have significant influence in the British media landscape if Fox were allowed to acquire Sky without divesting some assets. The Murdoch family controls Fox as well as News Corporation (NWSA), which runs several popular newspapers in the UK.

Will Disney and Fox Cede Sky to Comcast?

Comcast and Disney fighting over Fox

Comcast and Disney are competing to buy the majority of Fox’s assets. The deal includes Disney taking Fox’s current 39% stake in Sky. Buying Sky would give both Disney and Comcast more international exposure and more premium content that they could leverage to strengthen their pay-TV businesses that have come under serious attack from online video providers such as Netflix (NFLX), Amazon (AMZN), and Hulu in recent years. Comcast lost 92,000 pay-TV customers in the first quarter. AT&T (T), Charter (CHTR), and Dish Network (DISH) lost 188,000, 122,000, and 94,000 pay-TV customers, respectively.

Letting each other prevail where they lead

But Disney and Comcast run the risk of sinking deeper into debt in their pursuits of Fox and Sky assets. To mitigate the risk of significantly leveraging their balance sheets, perhaps Comcast and Disney may decide on a compromise where each of them prevails where they seem to lead. Comcast could allow Disney to walk away with Fox considering that Disney has a headstart in the race with US approval of its proposal. In return, Disney and Fox could allow Comcast to get Sky considering that it has a superior bid in the race. Comcast offered to buy Sky for $31 billion, topping Fox’s $25 billion bid.