Two Titans’ Rocky Relationship Stands Between Comcast and Fox

At one point last fall,

Comcast
Corp.


CMCSA -1.80%

Chief Executive

Brian Roberts

and other top executives at the cable giant thought they were near the deal of a lifetime to buy

Rupert Murdoch’s

entertainment assets.

Then everything went quiet. Mr. Murdoch’s

21st Century Fox


FOX 1.14%

postponed phone calls and didn’t share promised data on its business, people familiar with the talks said. There were days of silence when Comcast expected heavy negotiations.

Mr. Roberts took the outcome personally. “I don’t know what more I could do,” he told a close friend. After the holidays, he began gaming out strategies that could torpedo Disney’s Fox deal, people close to the company said, setting into motion media’s highest-stakes bidding war in years and the biggest bet of his career.

Comcast lobbed in an unsolicited, $65 billion all-cash offer for the Fox assets last week, and Disney responded Wednesday, raising its offer to about $71.3 billion in cash and stock through a reworked deal with Fox, putting the ball back in Comcast’s court.

Throughout this drama, Comcast appears to have been on the outside looking in. One big reason is Mr. Roberts’s strained relationships with the other executives at the table: 21st Century Fox Executive Chairman Mr. Murdoch, who is selling prime pieces of the empire he created over six decades, and Disney Chief Executive

Robert Iger,

a onetime TV weatherman who has built one of America’s most valuable media conglomerates.

“Rupert loves Bob Iger, though their politics are completely different,” a person close to him said. “He doesn’t want Brian Roberts.”

Comcast has a reputation as the industry boogeyman thanks to the cable company’s hard-nosed negotiations over rates it pays content companies to carry their TV channels. Mr. Murdoch and his sons believe Comcast and Mr. Roberts didn’t always deal in good faith, people close to the Murdochs say.

For the Murdochs, a stinging episode came three years ago when Comcast dropped Fox’s YES Network, home of the New York Yankees. The Murdochs believed Comcast reneged on a handshake deal, people familiar with the situation say. Comcast executives disagree that there was ever a done deal.

Meanwhile, Messrs. Iger and Roberts have at times been friendly, sharing a love for sailing and exchanging pictures of their boats, according to a person familiar with the relationship. But Mr. Roberts’s continuing pursuit of Fox assets has upset Mr. Iger and churned up old feelings of resentment stemming from Comcast’s 2004 hostile attempt to buy Disney, while Mr. Iger was president, according to people who know both men.

“Generally speaking, they bang into each other,” said cable pioneer and media magnate

John Malone,

who knows all three men. “There is respect but there is also rivalry.”

This account of the shifting battle for control of the 21st Century Fox assets is based on interviews with more than two dozen people close to the negotiations and familiar with the players involved.

The winner of the Fox assets will have a head start in the race to build an entertainment behemoth and respond to how the industry has been ravaged by consumers cutting the cable TV cord. The goal is to build the content, international scale and customer relationships to mount a challenge to tech giants such as

Netflix
Inc.,

Alphabet
Inc.’s

Google and

Facebook
Inc.

The assets for sale include the Twentieth Century Fox studio, a stake in streaming service Hulu, U.S. cable networks and fast-growing international businesses. Fox News and the Fox broadcast network aren’t part of the deal and will be spun off into a new company. 21st Century Fox and Wall Street Journal parent News Corp share common ownership.

For Mr. Roberts, a cable industry scion who was punching coupon books for Comcast at age 8, the pursuit of Fox is a chance to cement his legacy as one of the great deal makers of media and position Comcast for the future.

Comcast has tried to drive a wedge between Messrs. Iger and Murdoch. In a meeting last November over wine at Mr. Murdoch’s Bel-Air, Calif., estate, Mr. Roberts and NBCUniversal Chief Executive

Steve Burke

said they believed Mr. Iger had been exploring a presidential run and noted he had sidelined potential successors over the years, while Comcast had a proven management team, people familiar with the meeting say.

Mr. Roberts also told Mr. Murdoch that his son

James Murdoch,

Fox’s chief executive, should be wary of any promises of a job from Mr. Iger, the people familiar with the interaction said. Mr. Iger gave the Murdochs the impression that James could be in line for a senior role at Disney, other people familiar with the talks said. In May, The Wall Street Journal reported that the younger Mr. Murdoch won’t move to Disney if a deal between the companies is reached, and will strike out on his own.

Other people close to Rupert Murdoch said he had other reasons to be skeptical about a Comcast bid, such as possible regulatory risks. They said he is also unemotional about the auction process and will take the highest bidder.

The Murdochs showed a keen interest in Disney from the start. When Disney made its first approach early in the fall, they held a family conference call in which they decided to sell most of the company. Earlier, when

Verizon Communications
Inc.

had made an approach, there was no such meeting or signoff, a person familiar with the family’s deliberations said.

Lachlan Murdoch,

James’s older brother and Fox’s executive co-chairman, initially resisted selling but eventually came around to the idea and was relatively more open to Comcast than others in the family, the person said. He felt Disney’s offer was too low. Lachlan Murdoch met Mr. Roberts in Los Angeles and was impressed, though he shared some of his father’s concerns, the person said.

At the November meeting with Rupert Murdoch in Bel-Air, Mr. Roberts and NBCUniversal’s Mr. Burke said Comcast’s stock has outperformed Disney’s, NBC was beating Disney’s ABC in ratings and Universal’s theme parks were growing faster than Disney’s much-bigger parks. Mr. Murdoch said he was impressed, leaving Messrs. Roberts and Burke with a good feeling, people familiar with the meeting said.

Comcast put a $64 billion all-stock offer on the table, in line with what its executives believe was Mr. Murdoch’s asking price, people familiar with the talks said. They felt they were closing in on the deal.

In the background, Fox was busy negotiating with Disney after initial talks had fallen apart. On Dec. 7, Mr. Murdoch called Mr. Roberts and said Fox was going in a different direction, according to a Fox securities filing.

Fox said in the filing it rejected the higher Comcast offer because of the regulatory risks. The Murdochs and the Fox board were worried that the Justice Department’s lawsuit to block

AT&T
Inc.’s

acquisition of Time Warner Inc. indicated the government would oppose a Comcast-Fox tie-up.

The board was concerned Comcast didn’t offer a breakup fee in case the deal ran into regulatory hurdles, according to the filing. People in the Comcast camp felt Fox’s filing made it appear as if Comcast refused to offer a breakup fee when in fact Mr. Roberts showed openness to it during negotiations, people familiar with the matter said. Senior Fox executives say its filing, which says Fox asked Comcast multiple times for a breakup fee, is accurate.

Mr. Murdoch also considered that Disney’s stock has no controlling shareholder, while the Roberts family controls a one-third voting stake in Comcast, so the Murdochs would be a relatively small voice after a Comcast deal, people familiar with Fox’s deliberations say.

To Mr. Roberts, the fact Mr. Murdoch would rather take Disney’s stock over his—with such a large gap in their offer amounts—was an insult. Comcast felt it wasn’t taken seriously by Fox, people familiar with the talks said.

A dejected Mr. Roberts told his deal team to take a breather for the holidays. In January, he told them: We’re not giving up, according to people who attended.

Comcast viewed European pay-TV operator Sky PLC as a potential side door into the Fox deal because it was already in play. Fox, which owns 39% of Sky, had run into regulatory hurdles in its effort to buy the rest. After hunkering down in a war room in London, Mr. Roberts surprised Disney and Fox in February with a $31 billion informal offer for Sky.

Comcast’s 50-person deal team began working full-throttle on a possible larger move for the Fox assets Disney was buying. At one point, Comcast signaled to Disney it would be willing to split the spoils, where Comcast would take international assets including Star India and Sky, and Disney would take domestic assets, people familiar with the matter said. Disney didn’t engage and has since ruled out that possibility.

Comcast also entertained discussions with

Amazon.com
Inc.

to see whether carving up the Fox assets could offer a smoother regulatory path, these people said.

A month ago, Mr. Roberts’s Chief Financial Officer

Michael Cavanagh

came up with a plan to offer all cash, something Disney might struggle to match—cable investors have more tolerance for big debt loads. “That’s when we realized, ‘here’s a path to win,’ ” a person close to Comcast said.

On June 12, Comcast executives were glued to their TVs and Twitter, awaiting the judge’s decision on the AT&T case. When the court ruled unequivocally against the Justice Department, “we looked at it and said, this is the absolute best outcome,” a person there said.

The question now is how far Comcast will go to match Disney. The pursuit has already weighed on its stock, which has lost more than $32 billion in value since the Sky proposal.

Fox has indefinitely postponed the shareholder meeting, which had been set for July 10.

Mr. Roberts and Mr. Murdoch have tangled with each other for decades, including over Mr. Murdoch’s satellite provider

BSkyB

and Hulu, a streaming service co-owned by Comcast, Fox, Disney and AT&T.

At the annual media gathering in Sun Valley, Idaho, in 2013, assurances from Mr. Roberts helped influence his co-owners to take Hulu off the sale block. Two top bidders were Comcast rivals, DirecTV and AT&T. Mr. Roberts told Mr. Iger and Fox’s then-Chief Operating Officer Chase Carey he would help Hulu become the streaming platform for the cable-TV industry, people familiar with the discussions said. Fox and Disney felt Comcast never followed through, the people said. Comcast executives believe the cable giant made a good-faith effort but the content rights tangled the complicated talks.

In 2015, the Murdochs thought they had a deal with Comcast on a higher rate the cable giant would pay to carry the YES Network. The two sides agreed to extensions over the summer—a sign of good faith from Fox, since it would have less leverage after the baseball season.

At the end of the Yankees season, Comcast informed Fox executives it was going to drop YES Network because of low viewership relative to its price. People close to Comcast said its earlier agreement on a higher rate was tied to its proposed acquisition of Time Warner Cable, which had fallen apart amid regulatory opposition.

James Murdoch made a last-ditch effort to save the deal in a phone call with Mr. Roberts, who told him that it was the cable division’s decision and he wouldn’t interfere with it, people familiar with the call say. The blackout lasted more than a year. Only after the elder Mr. Murdoch got involved and tied YES’s renewal with that of powerhouse Fox News that Fox was able to secure YES’s position in January 2017.

“That did some serious reputational damage in Rupert’s mind,” one executive close to Fox said, referring to Mr. Murdoch’s view of Comcast. Rupert ”doesn’t forget things like that,” the executive said.

Since it acquired NBCUniversal in 2011, Comcast hasn’t been shy about its intention to copy the Disney playbook, investing in family animation, theme parks and consumer-products businesses. At a meeting with executives after acquiring DreamWorks Animation SKG Inc. in 2016, Mr. Roberts said he had “Disney envy,” according to a person who was present.

Messrs. Roberts and Mr. Iger have taken vastly different approaches to building up their companies. Mr. Roberts has done a series of mammoth deals, including a $47.5 billion deal to buy AT&T Broadband in 2001 and the $39.4 billion acquisition of NBCUniversal. He hasn’t shied away from competitive bidding situations, even if it means muddying relationships with friends and mentors.

During his tenure as CEO, Mr. Iger has gone for relatively smaller content targets including Pixar Animation Studios, Marvel Entertainment and Lucasfilm. Those three acquisitions added up to less than $16 billion, a fraction of the proposed Fox deal.

Over the course of several meetings, the elder Mr. Murdoch was sold on Mr. Iger’s vision.

Write to Shalini Ramachandran at shalini.ramachandran@wsj.com and Keach Hagey at keach.hagey@wsj.com

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