Disney to Comcast: I See You and I’ll Raise You

The Ball is now in Comcast’s court. Brian Roberts, Comcast’s chairman and CEO, must decide if it’s a good idea to reach deep into the cable giant’s wallet for the $40 per share or so it will take to outbid The Walt Disney Co. chairman and CEO Bob Iger for assets being sold by 21st Century Fox strongman Rupert Murdoch.

Murdoch last year picked Disney’s offer over one from Comcast, preferring Disney’s stock. But on June 13, Comcast made an all-cash bid of $35 a share that was valued 19% higher than the Disney bid accepted by Murdoch.

Bulking Up for Survival

Disney struck back on June 21, upping the ante to $38 a share in cash and stock for the Fox assets, or $71.3 billion, plus the assumption of $13.8 billion of debt. Both Comcast and Disney see the Fox assets — which include cable channels FX, FXX and National Geographic, movie and TV production studio 20th Century Fox, 21 regional sports networks and Fox’s 30% interest in over-the-top platform Hulu — as a key to competing against TV’s new video competitors, Netflix, Amazon, Apple and Facebook.

“After six months of integration planning, we’re even more enthusiastic and confident in the strategic fit of these complementary assets and the talent at Fox,” Iger told analysts and investors.

The Fox assets will help Disney accelerate its earnings growth, Iger said, and would fuel the company’s plans to build businesses that have a direct relationship with the consumer. “This acquisition clearly adds to our abilities in a very significant way,” he said.

Analysts said the gavel hadn’t yet come in this auction. “Given the strategic importance of the Fox assets, we expect Comcast will come back with a higher offer,” Jeffries managing director, equities research John Janedis said. “Given timing and regulatory risk that could lengthen a path to close, we believe the next counter offer from Comcast will be in the low $40s per share.”

Eventually, though, most analysts figured the Fox assets would go to Disney for two main reasons. One is that Disney’s offer of cash and stock would be more attractive to most Fox stockholders, particularly the Murdoch family, who would save in taxes by opting to be paid in Disney stock.

The second reason is because, despite Comcast’s argument that a U.S. District Court judge’s June 12 decision allowing AT&T to acquire Time Warner Inc. means the government wouldn’t stop media mergers, Disney is likely to have to jump smaller regulatory hurdles — and has a six-month head start at getting over them.

On the call with analysts, Iger asserted Disney has a better chance to close a Fox deal and would do so more quickly.

He quoted the judge in the AT&T case, Richard J. Leon, who said that “the temptation by some to view this decision as being something more than a resolution of this specific case should be resisted by one and all!”

Iger said, “One and all, as we read it, surely includes Comcast.” Because of Comcast’s status as a major broadband provider, plus its content holdings including a major broadcast network and multiple television stations and multiple cable channels, “it’s just simply an apples-to-oranges comparison,” he said.

Craig Moffett, principal and senior analyst at MoffettNathanson Research, bought Iger’s reasoning. “Disney appears to have a path to a quick close,” he said. “A Comcast deal might not be allowed at all.”

Comcast Could Balk at Price

Moffett added: “Disney has signaled to Comcast that a topping bid from Comcast will now have to be meaningfully above $40 lest it still be considered inferior due to regulatory risk. It’s not clear Comcast has the stomach to go much above $40.”

Moffett’s partner Michael Nathanson, who follows Disney, had more faith in Iger’s gut.

“Disney remains in a strong position to compete with any potential follow-on raised bid from Comcast,” Nathanson said. “In our view, Disney has the superior balance sheet, cost of debt, equity and rationale combined with fewer regulatory hurdles to emerge victorious over Comcast in a bidding war.

“Before, the only outstanding question was whether Disney’s board and management would go to the mat on this transaction?” he asked. “We now know the answer is clearly yes!”

Jon Lafayette

Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.