On May 23, Comcast Corporation (CMCSA - Free Report) said that it is in the process of preparing a superior all-cash offer for the assets of Twenty-First Century Fox, Inc. (FOXA - Free Report) that The Walt Disney Company (DIS - Free Report) has already shown interest in. Understandably, broadcasters are trying to make their international presence stronger given the stiff competition they are facing from streaming giants like Amazon.com, Inc. (AMZN - Free Report) and Netflix, Inc. (NFLX - Free Report) , which are fast invading their space and changing the entire ballgame.
Interestingly, Netflix briefly surpassed Disney in market value on May 24 wining the crown of the most valuable media company in the world. Against this backdrop, as Comcast prepares for a formal all-cash offer, it now needs to be seen where Fox finally builds its new den.
Comcast to Gain From Fox Acquisition
Comcast heated up the acquisition war on May 23 after announcing that it is in the final stages of preparing a fresh all-cash offer of an estimated $60 billion to buy the assets of Fox. Rupert Murdoch’s Fox last year had agreed to sell it film and television studios, FX Networks, National Geographic and other cable assets to Disney in a $52.4 billion deal.
Before entering into a deal with Disney, Fox had rejected Comcast’s offer to buy its assets, citing it as too risky although the bid was higher. However, Comcast’s recent announcement is a fresh challenge to both Fox and Disney, as they gear up to take their deal to shareholders this summer.
This is because, Fox might feel optimistic about the deal after recent indications that a judge might rule in favor of the Time Warner Inc and AT&T Inc. (T - Free Report) merger. The decision is expected on Jun 12 and a positive outcome might ease regulatory concerns and boost Comcast’s confidence in making an official offer.
Comcast has graduated from a cable television giant to a diversified media company. Taking over Fox makes sense to Comcast at a time when its rivals are scaling up. Charter Communication, Inc. (CHTR - Free Report) is aggressively working on mobile expansion, while AT&T’s bid to buy out Time Warner is in a move to enhance its pay TV and digital content. Given this scenario, taking over Fox will only strengthen Comcast’s broadcasting arm.
Disney Still Favored by Fox
Despite Comcast announcing its plans of making a fresh all-cash deal to Fox, Murdoch’s company is in favor of Disney because an all-stock offer will save the company from coughing up a huge tax amount. Whereas, an all-cash deal will make Fox pay up huge tax. Also, Disney has a bigger brand and global presence than Comcast and at the same time many of Fox’s parts are a perfect fit with Disney’s strengths.
Moreover, a Fox-Disney is unlikely to face regulatory problems that a Fox-Comcast deal bears the risk of. From Disney’s perspective too, Fox is a lucrative acquisition given that it is facing increased competition from the likes of streaming services like Netflix and Amazon. Currently, Amazon has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Disney also has plans of removing its content from Netflix in 2018. Given this scenario, acquiring Fox would add muscle to Disney’s broadcasting arm, as the deal will help it to get its film studio content, Fox TV, FX networks and National Geographic Channel.
The Bigger War
The biggest story amid all these bids and counter bids is the growing competition from streaming giants. Broadcasters have realized that tech companies with their digital content are giving them a run for their money and the only way to stay in the race is by expanding and diversifying their content.
In fact, Netflix has already said that it will dedicate $8 billion in 2018 solely to content. Comcast’s recent decision to add Netflix to its bundled offering further proves the growing demand and preference for online content. Although it too early to predict a winner, it makes sense for broadcasting giants to diversify their portfolio to survive the onslaught of streaming giants.
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