In Trump era, Disney-Fox deal still faces regulatory hurdle: China

Now that 21st Century Fox Inc. shareholders have signed off on the $71.3-billion sale of its entertainment assets to Walt Disney Co., some investors are already fretting about the next hurdle: regulatory clearance from China.

The deal, though already given a green light last week by the U.S. Justice Department, still needs antitrust approval from 15 other regulators around the globe. That includes China’s State Administration for Market Regulation because a small proportion — less than 2% — of Fox’s revenue is generated in that country.

Some investors are concerned that China might use this deal to retaliate against as much as $500 billion in import tariffs threatened by President Trump, who called Fox Co-Chairman Rupert Murdoch to congratulate him when the transaction was unveiled in December. White House Press Secretary Sarah Huckabee Sanders said at the time that Trump thought the deal could be a “great thing for jobs.”

That’s one reason why Fox shares are trading as if there’s about a 20% chance the deal will fail, said people with knowledge of the matter who asked not to be identified because they weren’t authorized to speak to the media.

Fox shares closed up a penny to $45.16 on Monday, well off their 52-week high of $50.14 earlier this summer.

“Any deal that needs China’s approval could be used as leverage and a strategic tool in a trade war,” Bloomberg Intelligence legal analyst Jennifer Rie said after the Fox shareholder vote Friday.

Qualcomm Inc.’s failure last week to win Chinese approval for its $44-billion takeover of NXP Semiconductors increases the risks for any other U.S. companies involved in deals requiring China’s approval, Rie said.

“But I would be surprised if regulators in China tried to do to the same thing to Disney/Fox,” she said. “Unlike the Qualcomm case, it’s not credible that there are competition concerns that prevent China’s approval. Using antitrust as an excuse would look like a straw man.”

A representative for Fox declined to comment.

“We remain confident that we will be able to close the transaction in the 12-to-18-month period as we previously stated,” a Disney spokeswoman said.

Ahmed and Palmeri write for Bloomberg.