Is Sky Plc (OTCMKTS:SKYAY) worth buying? Not if you own Comcast Corporation (NASDAQ:CMCSA) or Walt Disney Co (NYSE:DIS). In the long run, paying too much for any acquisition is bad news for both Comcast stock and DIS stock.
Here’s why.
As it stands now, Comcast has bid $31 billion for Sky, Europe’s largest entertainment company while Twenty-First Century Fox Inc (NASDAQ:FOX) is offering $16 billion for the 61% it doesn’t already own, a value of $25 billion were it trying to acquire the entire business.
The competing offers have sparked speculation that a bidding war could ensue for Sky that ultimately leads to Comcast CEO Brian Roberts offering to buy the Fox assets thereby potentially pulling the rug out from underneath Bob Iger’s grand exit from Disney.
I get that Sky provides Disney-Fox with greater access to the European market — Sky’s pay-TV business has 23 million customers in the UK, Ireland, Austria, Italy, and Germany with 35% of those customers subscribing to TV, internet, and telephone services — but is that really worth Disney spending more than the current bid of $15 billion to keep Sky out of the hands of Comcast?
The Disney-Fox tie-up is already big enough as it is and although Iger has called Sky a “crown jewel,” I believe the focus for Disney should be on the television and film studio assets that are right in its own backyard.
The Next Move for Comcast Stock
InvestorPlace’s Bret Kenwell recently suggested a few possible acquisition alternatives for Comcast CEO Brian Roberts.
“Consider if Comcast instead bought a movie studio on the cheap, like Lions Gate Entertainment Corp. (USA) (NYSE:LGF). Management is open to a deal and it has a market cap of just $4.3 billion,” wrote Kenwell March 8. “Or Comcast could buyout the rest of Hulu. Disney already has a new streaming strategy it’s working on and the trio of owners (at the time, it didn’t include TWX) tried to sell Hulu once before.”
Big deals like the one Disney’s trying to pull off with Fox take a lot of time to complete — Iger’s expected to extend his stay for 18-24 months to bring his legacy home — if they’re completed at all.
Just look at the AT&T Inc. (NYSE:T) merger with Time Warner Inc (NYSE:TWX). AT&T made the offer to TWX on Oct. 22, 2016. The deal is now before the courts; who knows when that’s going to be settled so it could be two years by the time the two companies know whether the deal can proceed or not.
Some analysts are now suggesting that AT&T should just walk away from the deal because the assets it’s getting aren’t worth the debt load it will have after a completed merger, something I’ve called out in the past.
As it relates to Comcast, I think Roberts is wise to back away from any complicated, time-consuming deals, and instead focus on smaller acquisitions that can strengthen its existing assets without costing the company a whole lot of money.
Bottom Line on Comcast Stock
A long, drawn-out bidding war for Sky or Fox is not in the best interest of shareholders. Comcast stock will be hurt by any prolonged uncertainty about its business.
If Fox is unwilling to back out of the Sky deal, Comcast should walk away from its $31 billion bid. A bidding war serves no one, except Sky, as Kenwell reminds us.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
