Will Comcast Rain on the Disney-Fox Parade?
Comcast previously made a similarly sized offer for the Fox assets, but the Murdoch family preferred the Disney deal due to both regulatory and tax issues.
According to news reports from Reuters and CNBC, Comcast (CMCSA) is reportedly seeking funding for an all-cash bid of $60 billion for the media assets that Twenty-First Century Fox (FOX) has agreed to sell to Disney (DIS) for $52 billion. This hostile bid of $60 billion from Comcast would be separate from the firm’s $30 billion unsolicited offer to buy the 61% of Sky not owned by Fox. The bid for the Fox assets is contingent on the approval of the AT&T/Time Warner merger by the courts. We note that Comcast previously made a similarly sized offer for the Fox assets, but the Murdoch family preferred the Disney deal due to both regulatory and tax issues. If Comcast did bid on the Fox assets, it would likely trigger a bidding war between the firm and Disney as both firms look to bulk up to compete in the increasingly aggressive battle for content. While Rupert Murdoch may prefer Disney shares and the promise of remaining relevant in the media space, we expect outside shareholders to simply look for the highest price for the assets. We are maintaining our wide moat ratings for all three firms and fair value estimates of $130 for Disney, $42 for Comcast, and $43 for Fox.
While a ruling allowing the merger of Time Warner and AT&T would appear to be an endorsement of all vertical mergers, we note that Comcast’s potential acquisition of the Fox assets would be both vertical and horizontal in nature due to the firm’s purchase of NBCUniversal in 2011. We believe that regulators could argue that the company already has significant power in both the distribution and creation of content and that the addition of the Fox assets would provide Comcast with the ability to harm consumers.
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Neil Macker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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