On 14 December 2017, Disney announced an agreement to buy most of 21st Century Fox, the film studio, the cable networks, the stakes in Hulu, Sky and Star India, for 52.4 billion dollars in Disney stock. Comcast had looked at the same assets in November and dropped out days before the signing. Fox's board picked Disney, among other reasons, because Disney offered a 2.5 billion dollar reverse termination fee if regulators blocked the deal and Comcast would not.
The agreement held for six months. On 13 June 2018, one day after a US court cleared AT&T's takeover of Time Warner, Comcast sent Fox an unsolicited all-cash offer: 35 dollars a share, about 65 billion dollars, roughly 19 per cent above the value of Disney's stock deal. Fox postponed its shareholder vote. Seven days later, on 20 June, Disney and Fox amended their agreement: 38 dollars a share, half cash and half stock, about 71.3 billion dollars. Fox's board called it superior. On 27 June the Justice Department approved Disney's deal on condition that it sell Fox's 22 regional sports networks.
On 19 July Comcast withdrew. It said it would concentrate on Sky, the British broadcaster that Fox owned 39 per cent of and both companies wanted. Fox and Disney shareholders approved the merger on 27 July. In September Comcast won Sky in a rare formal auction at 17.28 pounds a share against Fox's 15.67, and Fox, with Disney's consent, sold its Sky stake to Comcast for about 11.6 billion pounds. The Disney–Fox deal closed on 20 March 2019.
Disney got what it signed for. It paid about 19 billion dollars more than it had agreed to, and half of it in cash. Four moves in that sequence are worth taking apart.
1. A signed deal is an invitation, so price the break fee for the bidder you fear
A signed agreement does not end an auction. It publishes the price. Every rival now knows exactly what it has to beat, and the only thing standing between them and the seller is the termination fee.
The joint proxy filed with the SEC shows how that fee was set. Disney first asked for a termination fee of up to about 2.5 billion dollars. Fox negotiated it down to 1.525 billion, under 3 per cent of the deal value. When Comcast came in 19 per cent higher, it simply offered to reimburse the fee. A 3 per cent fee does not stop a bidder who is prepared to pay 19 per cent more.
Disney had traded fee size for other things, among them a non-solicitation covenant and the regulatory commitments it took on. That may have been the right trade. But the fee was negotiated as a sign of good faith between two signing parties, when its real job was to deter a third party who was not in the room.
At your own table: when you sign a term sheet, a letter of intent or an exclusivity clause, ask who might come in behind you, by how much, and whether the penalty you agreed would change their mind. If it would not, you have not bought protection. You have bought a few weeks.
2. Ask what the second bidder actually wants
Comcast never owned the Fox studio. It owns Sky. Whether that was the plan from the start is not knowable from the outside. The effect, however, is clear. Comcast's bid for Fox raised Disney's price by 19 billion dollars, forced Disney to add 35.7 billion dollars of cash to an all-stock deal, and ended with Comcast taking the one asset in the package it most plausibly needed for its own strategy: a European distribution platform.
The market read it the same way. The day Comcast dropped its Fox bid, its shares rose. Investors were relieved it had not kept bidding.
When someone enters your negotiation late and loud, treat their headline demand as one hypothesis among several. They may want a piece of the deal, not all of it. They may want you to pay more for the rest so that you are weaker in the next contest. Ask what they end up holding if they lose, and whether losing would hurt them at all.
The bidder who can walk away with a consolation prize is not bidding against you. He is pricing you.
3. The seller's board sold certainty, not just a number
Fox's board is the quiet winner of this story. In December 2017 it chose a lower stock offer over Comcast's interest because Comcast, according to the proxy, would not provide a reverse termination fee against the regulatory risk. The board put a price on the chance that a deal would collapse after a year of review and decided that price was real.
In June 2018 it did not jump at Comcast's cash. It postponed the vote, which kept both bidders alive, and gave Disney the chance to match. Disney came back within a week with a higher price, a cash component and, a week after that, regulatory approval in hand. The board then declared that offer superior and moved to a vote. At no point did it have to choose between money and certainty, because it had structured the process so that the winning bidder had to deliver both.
If you are selling anything, a company, a house, your own services, the highest number is not automatically the best offer. Ask each bidder what happens if the deal falls through, who bears that cost, and how fast they can close. Then let them compete on those terms as well as on price.
4. When a higher price is not a win
Disney won. It also paid 71.3 billion dollars for assets it had agreed to buy six months earlier for 52.4 billion, a 36 per cent increase, with debt on top. Whether that was too much is still argued, and depends on what you believe about streaming. What is certain is that the final price was not set by Disney's valuation of Fox. It was set by Comcast's bid plus a margin.
That is the trap of every contested negotiation. Once a rival appears, the reference point shifts from "what is this worth to me" to "what do I need to beat". The second question is much easier to answer and much more expensive, because the rival gets to choose the number.
The protection is to decide your ceiling before anyone else is in the room. Not a vague "we will not overpay", but a figure, written down, with the reasoning attached, and a person who is allowed to say "that is above the line" when the adrenaline is up. If the rival goes past it, you let them. Losing an auction at your ceiling is a result. Winning it above your ceiling is a cost you will carry for years.
At your own table
You will probably never buy a film studio. You will sign a term sheet, bid for a contract, or find that the candidate you made an offer to has a second offer in hand. The pattern is the same.
- Price any break fee or exclusivity clause against the rival you fear, not the partner you trust.
- When a late bidder appears, work out what they get if they lose. If the answer is "quite a lot", be careful.
- If you are selling, make bidders compete on certainty and speed, not only on price.
- Write your ceiling down before the first counter-offer arrives, and give someone the authority to enforce it.
The hard part is not knowing the ceiling. It is holding it when a counterpart keeps raising the stakes and the clock is running. You can rehearse exactly that pressure against an AI counterpart on Pacct, with a debrief afterwards that shows where you drifted.
