The battle for Fox is officially on. Comcast today submitted a competing bid for 21st Century Fox’s film and television assets, initiating what could well result in a high-stakes bidding war with its biggest media rival, The Walt Disney Company.
The U.S. cable conglomerate made an all-cash bid of $65 billion for much of Fox’s film and television assets, its international holdings and its stake in the streaming service, Hulu. The $35 per share offer represents a 19% premium on Disney’s $52.4 billion all-stock offer for the same assets.
Comcast confirmed last month that it was planning to make a rich counter-offer for Fox, but appeared to be awaiting the result of the AT&T-Time Warner antitrust case. Judge Richard Leon yesterday shut down the U.S Department of Justice’s arguments in seeking to block the deal on an untested theory of competitive harm by the combining of two companies whose businesses do not overlap. Wall Street analysts confirmed following the announcement that the counter offer from Comcast would become a lot easier due to this outcome. Media analyst Michael Nathanson had this to say on the DOJ ruling:
“The clarity of his opinion and his urging of the DOJ not to appeal this decision (as a means of disrupting the transaction, which must close by June 21) will likely be interpreted by Comcast as a green light to bid for Fox’s assets.”
The decision clarified an uncertain regulatory environment and pushed the cable operator to launch a counter offer for Fox. Nathanson predicted a $40 per share bid for Fox’s assets, well in excess of its earlier $34.41 offer. He and other Wall Street analysts are predicting Disney to match Comcast’s offer, potentially taking on $37 billion in debt to do so.
“We continue to believe that Disney has the superior balance sheet, cost of debt, equity and rationale to emerge victorious over Comcast in a bidding war. The question is will Disney’s board and management go to the mat on this transaction? We think the answer is yes.”
For Comcast, which is largely a domestic company (operating out of the United States), Fox represents a major leap onto the global stage. Fox’s 39% stake in the UK’s Sky Network and in Star India would boost the U.S. cable operator’s international revenue to 25% of income.
Fox’s entertainment assets — its film and television studios, the Fox film franchises and deep library, the FX and National Geographic cable TV networks, and 22 cash-cow regional sports networks — would enhance Comcast’s entertainment portfolio. Specifically, the film assets were major reason for Disney pushing for the deal to happen as they are planning to launch their very own streaming service sometime in 2019.
Comcast currently already owns NBCUniversal and DreamWorks Animation and America’s largest cable TV system.
The media company would also gain a controlling interest in the fast-growing Hulu streaming service, in which it now shares a one-third stake with Fox and Disney; Time Warner holds a 10% stake in the service.
Above all else, Comcast will need to convince Fox’s board of directors — and ultimately, its shareholders — that the deal would not pose greater regulatory risks than Disney’s offer. Insiders speculate that Comcast will swing the argument of posing as less of a threat to film exhibition than the house of mouse, since the combination of Fox and Universal would account for just 21% of the domestic box office versus Disney and Fox’s combined share of 47%.
BTIG analyst Rich Greenfield also wrote about how Comcast views Fox’s coveted assets:
“We increasingly believe Comcast views the acquisition of both Fox and Sky as ‘must-wins’ as it tries to replicate Disney’s size and global scale/prowess in content creation (Comcast has long had “Mouse Envy”). Not only are there no obvious alternatives to Fox/Sky, if Disney succeeds in the purchase of both companies, Comcast is unlikely to ever be able to catch-up or even draw close to Disney’s dramatically enlarged global footprint.”
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