Comcast Corp. reportedly isn't expected to quietly surrender in its quest for 21st Century Fox Inc.’s entertainment assets as Wall Street expects a counterbid of up to $80 million as the bidding war with Walt Disney Co. spirals out of control.
After Disney (DIS) raised its offer for 21st Century Fox’s entertainment assets to $71.3 billion, Comcast Chief Executive Officer Brian Roberts is now mulling how to respond to the escalating bidding war.
Wall Street is girding for Comcast to counterbid with something around $41 or $42 a share in cash. But that would saddle the company with debt and threaten its credit rating.
Disney may have another edge: It’s close to winning antitrust approval for its offer, according a person familiar with the matter. Comcast may not be able to offer Fox investors the same assurances.
Meanwhile, the question is how high it will go. "Bidding could reach up to $80 billion, according to analysts. That could mean Comcast counters with a 10% premium or so on Disney’s latest bid, dangling Fox an offer in the low-to-mid $40s a share," The Wall Street Journal reported. (Disney’s new bid is $38 per share.)
It all comes down to how badly Roberts wants the Fox properties, a sprawling array of entertainment assets ranging from “The Simpsons” to “X-Men.”
The 58-year-old CEO could be on the verge of another gambit on the order of his deal to acquire NBCUniversal in 2011 and create a media conglomerate -- one that owns both a cable infrastructure and the TV programming itself.
“Comcast has indicated that they are very serious about this deal,” Jonathan Chaplin, an analyst with New Street Research LLC, told Bloomberg.
But investors don’t share Comcast’s enthusiasm. The shares have fallen about 20 percent in the months leading up to the company making a $65 billion bid last week. Now it’s contemplating an offer that may have to approach -- or even surpass -- $75 billion.
“The market doesn’t think this is a good idea,” Chaplin said. “Comcast has lost $32 billion since they entered the bidding process.”
Comcast has sought to break up a deal between Fox and Disney that was hammered out in December. The two sides initially agreed to a price of about $28 a share, and then Comcast countered with $35 last week.
Rather than pursuing negotiations with Comcast, Fox reached a fresh agreement with Disney on Wednesday. The $38-a-share price is about $10 a share higher than what Disney laid out in December. It also lets investors collect half the sum in cash, rather than the all-stock terms offered in the original proposal.
However, the Journal explains that Comcast’s consent decree with the Justice Department, which placed restrictions on the company following its acquisition of NBCUniversal, is about to expire.
If it acquires Fox, Comcast will have increased incentive and ability to raise prices. “It goes beyond just pushing the envelope for Comcast to use this bid to try to extend its reach yet further,” Gene Kimmelman, a former antitrust attorney for the Justice Department, told the Journal.
Disney is offering stock and cash, which can lower the tax burden for Fox shareholders.
Fox Executive Chairman Rupert Murdoch clearly prefers to sell to Disney for these reasons, the Journal explained. "But a sky-high Comcast bid will make that tricky. Is it worth it to Disney to reach above $80 billion, endangering its credit rating? That depends on how well it manages the Fox assets," WSJ.com reported.
“If Disney buys above $80 billion but then is able to take the content, pivot hard with a direct-to-consumer offering, and create a robust subscription business with tens of millions of subscribers, people will look back and say it was genius,” said John Janedis, a media analyst at Jefferies LLC. “It’s one of those things that is impossible to prove or disprove right now.”
The duel follows AT&T Inc.’s victory over the U.S. Justice Department in its antitrust battle to take over Time Warner Inc. That outcome is expected to spur a wave of media consolidation, emboldening companies to get more aggressive with deals.
The Disney-Comcast contest will determine who controls much of Murdoch’s empire, including Fox’s movie and TV studios, television networks such as FX, and multichannel providers like Star India and Sky Plc.
But the two sides aren’t vying for all of Fox. Part of the business will be used to create an entity called “New Fox,” which will include the highly lucrative Fox News, the sports channels FS1 and FS2, and the Fox broadcasting channel. That operation will be run by Lachlan Murdoch and focus on domestic television, news and sports.
(Newsmax wire services contributed to this report).
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