Disney Rethinks Fox Deal

Walt Disney Co. might seek to change the terms of a $3-billion acquisition of Fox Kids Worldwide, the children’s cable venture it agreed to buy from News Corp. in July.

Chief Executive Michael Eisner said the company was reviewing the agreement in light of unanticipated world events after the deal was struck, according to an article Tuesday in the Financial Times that quoted Eisner.

Disney has been hardest hit of all the media companies since the Sept. 11 terrorist attacks, which exacerbated an economic slowdown that had contracted advertising revenues.

Attendance at Disney theme parks has fallen as consumers curtailed travel.

“We’re looking at what has happened since then and how that affects the deal,” Eisner told the Financial Times. “We are a little concerned.”

Disney’s stock has dropped 34% this year, and its debt rating was cut in the last month by both Standard & Poors and Moody’s, in part because of the high-priced Fox deal, which includes $2.3 billion in debt.

The admission is a reversal for Disney. A week after the attacks, Disney spokesman John Dreyer denied widespread speculation that Disney was trying to restructure terms of the deal with News Corp. He told The Times that Disney was moving as quickly as it could to close the deal by November, with no changes anticipated in the original terms.

News Corp. said Tuesday that Disney has no wiggle-room in the contract.

“The deal is binding and there are no outs that would allow Disney to renegotiate or review the deal,” said a News Corp. spokesman said.

A Disney spokesperson said, “We are concerned about the impact of current and future events on the transaction and will continue to review it.” Eisner was traveling Tuesday and could not be reached for comment.

One News Corp. executive said the only possible loophole Disney could try to invoke is the so-called material adverse claims clause, which is boilerplate in most acquisition contracts.

These provisions allow companies to back out of deals with no penalties in the event of a major catastrophe, a war or a circumstance that materially changes the financial condition of the asset being acquired.

News Corp. sources say Disney would have a hard time proving that the Sept. 11 events have seriously affected the Fox Kids asset.

Disney is paying what is considered a premium price for Fox Kids, whose main asset is Fox Family, a cable channel with wide distribution that Disney plans to use as a secondary outlet for programming from its ABC network.

Cable executives are unlikely to pay the steep increases that Disney is expected to seek from them for carrying the channel.

Many of the Fox Family channel’s largest contracts, with distributors such as DirecTV and AOL Time Warner, have expired.

Cable executives have speculated that AOL Time Warner, for instance, could threaten to drop the channel rather than pay the price increases Disney is seeking.