AT&T Ruling Paves Way for Comcast Offer on Fox Assets
Comcast's all-cash offer could come as early as today.
On June 12, U.S. Judge Richard J. Leon ruled against the attempt by the U.S. Department of Justice, or DOJ, to block AT&T's acquisition of Time Warner (TWX) for $85 billion. While we thought the government had a decent chance of blocking the merger, we were more surprised that the judge did not impose any conditions in order for the merger to proceed. We also note that the judge urged the DOJ to forego filing a stay against the merger which the government has six days to do. Since Judge Leon forcibly argued in his decision that the government failed to make its case that the merger would harm consumers, we believe that the DOJ may not appeal the ruling whereas prior to the ruling, we expected the government to appeal if the decision went against it. As a result, we now project that the merger will be completed in the near future and are raising our fair value estimate for wide-moat Time Warner to the deal price of $107.50 from $97.
Second, we now expect Comcast (CMCSA) to formally make a hostile bid as soon as June 13 for the Fox assets as the cable company recently promised to do. As we previously noted, Comcast will present an all-cash offer for the assets that is higher than Disney's current all-stock bid. Management previously assured Fox shareholders that its offer "would be at least as favorable to Fox shareholders as the Disney offer" with respect to the spinout of "New Fox" and the regulatory risk. In response, Disney has reportedly been meeting with bankers to find funding to sweeten its all-stock bid with cash. We believe that a Comcast offer would trigger a bidding war between Comcast and Disney as both companies look to bulk up to compete in the increasingly aggressive battle for content. We are maintaining our wide moat ratings for all three companies and fair value estimates of $130 for Disney, $42 for Comcast, and $43 for Fox as we await the potential start of a bidding war for the Fox assets.
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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.