Twenty-First Century Fox Executive Chairman Rupert Murdoch is used to getting his way at the company he built into a media empire. But a challenge to a $52 billion deal he put together six months ago could test his sway with shareholders.
Several Fox investors told Reuters they would be open to terminating the company's agreement, inked in December, to sell most of its media assets to Walt Disney if Comcast follows through on its plan, revealed by Reuters last week, to launch a rival all-cash bid for as much as $60 billion.
Murdoch, Fox's largest shareholder, will be tough to win over, however. His family trust holds a 17 percent stake in the U.S. TV and movie giant and would face a multi-billion dollar capital gains tax bill if he accepted an all-cash offer from Comcast, tax experts told Reuters.
"If the deal was done exactly the same way, but for cash rather than stock, the tax liability would be mammoth," said Robert Willens, president of tax and consulting firm Robert Willens LLC. "Gains would be taxed at capital gain rates which, for a New York resident, amounts to about 30 percent."
The exact tax hit for 87-year-old Murdoch cannot be ascertained because details of his trust are not public. A Fox spokesman declined to comment on behalf of Murdoch on his tax affairs and how they would influence deal considerations.
However, sources close to the deal between Disney and Fox said the financial impact on Murdoch would be big enough for him to prefer an all-stock transaction, which would be non-taxable for all Fox shareholders.
That potentially puts Murdoch, who remains the most powerful voice inside the company, at odds with some Fox shareholders who would be open to abandoning the Disney deal if Comcast's cash offer was high enough.
"I always prefer cash deals," said Salvatore Muoio, whose New York-based investment firm S. Muoio & Co owns 26,000 shares of Fox, according to Thomson Reuters data. "The value of a cash deal is certain."
Other Fox investors said their decision would be based on the price that Comcast offered. "I would have to look at the tax dynamic and what it would mean for my taxable clients," said Mario Gabelli, chairman and CEO of Gamco Investors, whose firm owns 9.6 million shares of Fox.
Fox's large institutional investors, such as index fund managers BlackRock and Vanguard, do not factor in taxes when choosing between cash and stock deals, because they are not taxed on any income they distribute to shareholders, even though this might affect some of their individual investors.
Fox, Comcast, Disney, BlackRock, and Vanguard all declined to comment.