Disney appears to hold a clear advantage over
Comcast in its pursuit of Fox, according to several prominent media analysts. The company will likely emerge the victor in the bidding war for the collection of film and television assets that
Rupert Murdoch has assembled over three-plus decades.
Any counteroffer from Comcast would need to be substantially more than
its previous $65 billion all-cash bid to claim the prize, Wall Street observers note. The U.S. cable and media giant is hardly deterred by the odds, and is said to be in talks with potential funding partners to submit a richer bid, which some analysts predict could approach $47 a share.
The issue we see is that the strategic rationale just doesnt appear to be there for Comcast to chase, wrote Cowen and Co. media analyst Doug Creutz. Management cited geographic diversification as an important reason for the bid. However, if Comcast shareholders desire that type of diversification, they are completely free to go rebalance their portfolio in the open market without paying a big M&A premium.
The stocks in the three media giants are not making dramatic moves ithis holiday week. In afternoon trading, Fox and Disney are off a fraction at $48.88 and $104.79, respectively. Comcast is up a dime at $33.26.Whatever the M&A outcome, one effect of the battle is clear: Disney and Comcast will leave the bidding process mortal enemies, says BTIG media analyst Rich Greenfield. (In his updates on what he has dubbed #BattleFox, Greenfield uses the puckish illustration of Comcast CEO Brian Roberts and Disney chief
Bob Iger in a
Star Wars lightsaber duel.) Tensions have been steadily rising, as evidenced by Iger pointedly attacking Comcasts potential to win regulatory of a Fox acquisition.
The source of rising tensions is clear, as Comcast has already forced Disney to pay 35% more for Fox than it had originally agreed upon and caused Disney to stop its share repurchase program, wrote Greenfield. Add to that the cost of Comcasts competing bid for UK satellite broadcaster Sky TV, with its 23 million subscribers in seven countries, which may force Fox to up its offer for Sky in the coming days (and increase Disneys overall debt load from the two planned acquisitions).
Greenfield observes that the bidding war comes at a time when Disney is heading into a major investment cycle for its Disney-branded streaming service scheduled to launch next year, one that we believe investors are severely underestimating as it tries to build a global SVOD platform to compete with Netflix. The tab could run into the billions, the analyst estimates, at a time when the company has opted to forego revenues from the content syndication from distributors such as Netflix, which is estimated to have generated $300 million annually in revenues.
If we were in Comcasts shoes, we would literally push Disney to their breaking point to see if we could make them blink and give up, Greenfield wrote.
That sentiment is hardly a unanimous one among media watchers.
Cowen and Co.s Creutz wrote its time for Comcast to stand down.
Iger has made the case that Foxs complimentary properties including its
Avatar, X-Men and
Planet of the Apes film franchises and
Family Guy, Homeland, Empire, Atlanta, and
American Horror Story TV shows will further Disneys strategy to build a Netflix rival.
While we disagree with that assessment we think Disney has sufficient assets to be successful, and adding Fox just dilutes their brand and asset mix we could be wrong, Creutz writes. Most importantly, Disney management clearly believes in that idea. Comcast (for fairly obvious reasons) has little incentive to play up the direct-to-consumer-angle.
Comcasts Roberts has talked about the value of Foxs international holdings its ownership of Star India, one of Indias largest media conglomerates, its 39% stake in UK satellite broadcaster Sky TV and its potential to broaden the reach of the largely U.S.-centric company.
Disney has a much better reason (from their perspective) to escalate bidding than Comcast does, Creutz observes.
