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Comcast's Higher Bid for FOXA Assets to Ruin Disney's Party

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Reportedly, Comcast (CMCSA - Free Report) is ready to pay more than Disney’s (DIS - Free Report) offer of $52.4 billion for 21st Century Fox’s (FOXA - Free Report) assets, only if a federal judge approves AT&T's (T - Free Report) planned takeover of Time Warner .

According to regulatory filing, Comcast along with Verizon Communications (VZ - Free Report) had been an early suitor for Fox’s assets that includes Twentieth Century Fox Film and Television studios, as well as cable and international TV businesses.

However, Fox didn’t find Verizon’s all-stock offer lucrative at that time. The company also rejected Comcast’s offer due to regulatory concerns. The cable giant had also suggested divestitures, which however, failed to satisfy Fox’s management.

Moreover, Comcast’s refusal to entertain a reverse break-up fee, in case of a regulatory blockage sealed the fate of the deal. Notably, Disney’s offer for Fox’s assets includes a $2.5 billion termination fee clause. However, the offer of $29.54 per share is lower than Comcast’s previous offer of $34.41 per share.

Comcast Planning an All-Cash Bid

Per CNBC, “Comcast originally touted its strong stock as a reason for Fox to accept a deal from the largest U.S. cable provider instead of Disney.”
 

 

However, shares of Comcast have declined 18.5% since Disney’s announcement of Fox’s asset acquisition. The company now believes an all-cash bid will find preference from Fox’s shareholders.

Notably, Comcast has also submitted a $31-billion offer to take over Sky plc. Fox which holds 39% stake in Sky. It had earlier offered $16.5 billion to take over the remaining assets of Sky, which however, were marred by regulatory intervention.

Fox had expected the deal to complete in mid-2018, which is now uncertain following Comcast’s higher bid.

Why Comcast is So Eager to Buy Fox & Sky Assets?

Fox’s asset and Sky acquisition will boost Comcast’s international exposure. Per Bloomberg, Fox’s Star operates 58 channels in eight languages in India, while Sky is one of the largest pay-TV companies in Europe.

The deal will consolidate two of the six major Hollywood studios under one banner and will help Comcast compete against the likes of Netflix and Amazon Prime.

Fox’s large library of TV shows and movies like The Simpsons and Avatar will also boost Comcast’s content portfolio.

The Murdoch Factor Can Save Disney

Comcast’s premium price offering will surely escalate tension in the Fox-Disney deal. In fact, a shareholder like TCI Fund Management, which owns almost 7.4% stake per Reuters, believes that Fox’s board should sell the company to the highest bidder.

However, Comcast can find it difficult to win over Rupert Murdoch, largest shareholder of Fox, through an all-cash deal, as it will attract significant capital gain tax. This can finally help Disney to clinch the deal.

Zacks Rank

Currently, both Comcast and Disney has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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