If Walt Disney DIS 0.99% is hoping that its newly juiced bid for Fox assets will crush Comcast CMCSA 1.77% into submission, it is likely to be disappointed.
The new offer, more than $70 billion in cash and stock, represents a 9% premium over Comcast’s offer of $65 billion and a 36% premium to Disney’s original offer of $52.4 billion. Yet Comcast won’t be cowed so easily. With its pay-TV business under pressure, it wants to diversify and gain scale. There are no other media assets as desirable as those at 21st Century Fox . FOX 7.25% The others it could acquire—Lions Gate, Viacom, Discovery—are peanuts by comparison.
So Fox and Disney can expect Comcast to come running back with a new offer. The question is how high it will go. Bidding could reach up to $80 billion, according to analysts. That could mean Comcast counters with a 10% premium or so on Disney’s latest bid, dangling Fox an offer in the low-to-mid $40s a share. (Disney’s new bid is $38 per share.)
Fox shares rose nearly 8% on Wednesday in anticipation.
That will put pressure on Disney. Yet Disney’s offer carries other kinds of value that Comcast can’t match—namely, time value and certainty value. Disney has a six-month head start on Comcast in terms of regulatory review, which means the deal could close much sooner than it would with Comcast. Disney should also have an easier time with regulators.
Comcast’s consent decree with the Justice Department, which placed restrictions on the company following its acquisition of NBCUniversal, is about to expire. If it acquires Fox, Comcast will have increased incentive and ability to raise prices. “It goes beyond just pushing the envelope for Comcast to use this bid to try to extend its reach yet further,” said Gene Kimmelman, a former antitrust attorney for the Justice Department. And Disney is offering stock and cash, which can lower the tax burden for Fox shareholders.
Fox Executive Chairman Rupert Murdoch clearly prefers to sell to Disney for these reasons. But a sky-high Comcast bid will make that tricky. Is it worth it to Disney to reach above $80 billion, endangering its credit rating? That depends on how well it manages the Fox assets.
“If Disney buys above $80 billion but then is able to take the content, pivot hard with a direct-to-consumer offering, and create a robust subscription business with tens of millions of subscribers, people will look back and say it was genius,” said John Janedis, a media analyst at Jefferies LLC. “It’s one of those things that is impossible to prove or disprove right now.”
If Disney doesn’t want to reach above $80 billion, one option may be to look for detente with Comcast by splitting up Fox’s assets.
The obvious one to let go is Sky, the British broadcaster, which is 39%-owned by Fox. Fox is bidding to acquire the remaining 61%, which would then be handed over to Disney in a deal. But Comcast has also bid to buy all of Sky at £12.50 ($16.46) a share (higher than Fox’s proposal of £10.75 a share).
Comcast is eager to go international, and with Sky it could. If Comcast Chief Executive Brian Roberts is feeling very jilted, he could also demand Star India, Fox’s business in India. By relinquishing them, Disney could get what it most wants—the film and TV studios—at a decent price, rather than engaging in a destructive bidding war.
If everyone can’t be perfectly happy, then at least they can get close to it. Except for Mr. Murdoch, whose happiness just keeps getting more perfect.
Appeared in the June 21, 2018, print edition as 'Don’t Count Comcast Out Yet.'