In the battle between the media titans, Walt Disney Co (NYSE:DIS) appears to have the upper hand against Comcast Corporation (NASDAQ:CMCSA). Both have placed substantial bids for Twenty-First Century Fox Inc (NASDAQ:FOXA), as acquiring it aligns with each competitor’s long-term strategy. That said, Fox shareholders prefer Disney. If this deal is finalized, what will Comcast Corporation buy next?
To put it bluntly, the options aren’t good. This is one of the reasons why the ongoing Walt Disney vs. Comcast struggle is so compelling. It’s no secret that neither organization has performed well this year in the markets. DIS shares are down 6.6%, while CMCSA has hemorrhaged nearly 24%. Cord-cutting and other dramatic shifts in the entertainment industry have produced leaner times.
For Disney, the synergy is obvious. In the last few years, the “Magic Kingdom” has been incredibly acquisitive and productive with its film escapades. Buying out Fox would allow them to control even more lucrative franchises, becoming an overwhelming force in a possibly resurgent Hollywood. Plus, Fox’s entertainment cable channels would help give an edge to the Walt Disney-Comcast battle playing out on the small screen.
On the other side of the field, Comcast covets Sky PLC (ADR) (OTCMKTS:SKYAY), which is 39% owned by Fox. Despite strong reservations from those who believe CMCSA should focus on rebuilding its foundations, CEO Brian Roberts is undeterred. With Sky under its wing, the embattled company broadens its international presence — of which, it has very little. Thus, management isn’t thinking about what will Comcast Corporation buy next. It’s Sky (i.e. Fox) or bust.
The impediment? Disney also wants Sky for the same reasons. Although Disney levers worldwide recognition, Sky offers unprecedented access to the wildly popular English Premiere League.
Walt Disney vs. Comcast is about to get ugly!
Comcast-Fox Deal Is a Make or Break Move
As I mentioned at the top, Fox shareholders overwhelmingly prefer Disney’s bid. According to CEO Bob Iger, Fox’s board granted unanimous approval for their $52 billion bid, paid in DIS stock. The payment difference is significant because the Comcast Fox deal is an all-cash affair for a significantly higher $60 billion.
Given the unanimous approval, it’s clear Fox sees greater strategic benefits aligning with Disney. Furthermore, Fox Executive Chairman Rupert Murdoch forecasts a higher share value for DIS stock. Otherwise, the Comcast-Fox deal makes much more logical sense.
However, the struggle is far from over. According to insider sources, no contingency plans exist to determine what Comcast would buy next should its overtures fail. Indeed, management doesn’t consider any other company that’s remotely compatible with Comcast’s broader strategies. Thus, all options are on the table.
Primarily, Comcast has the option to sweeten the deal. If enough shareholders perceive greater value in getting a higher cash payout now as opposed to a potentially higher return later, CMCSA could end up getting what it needs.
Although he’s not giving an inch, Disney’s Iger is well aware of the risks. An option that DIS has to avoid is a rapidly escalating bidding war. Obviously, both sides want complete control of Fox, but failing that, a consolation is acceptable.
Sky aside, what will Comcast Corporation buy next if it had its way? Star India is a massive opportunity. According to an Ernst & Young report, by the year 2025, India’s entertainment market will be one third of China’s. Furthermore, increased economic opportunities will drive paid subscriptions for mobile entertainment.
Comcast would also love a controlling stake in Hulu as a buffer against Disney and Netflix, Inc. (NASDAQ:NFLX).
What Will Comcast Corporation Buy Next If Its Fox-Hunting Fails?
As I’ve noted, failure isn’t an option for CMCSA’s management team. But who knows how these things go? Should Comcast end up whiffing, it does have a few options. Needless to say, management wouldn’t be thrilled by any of them.
First, as our own Bret Kenwell stated, Comcast could buy a trendy movie studio like Lions Gate Entertainment Corp. (USA) (NYSE:LGF) at a discount or it could aggressively pursue its international ambitions by acquiring CBS Corporation (NYSE:CBS).
However, neither avenue is an appropriate fit. Buying Lions Gate could boost Comcast’s movie portfolio, but it really wants the international presence. Going with CBS provides exactly that, but the Justice Department would have a few words.
Arguably, Comcast’s Fox bid is, legally, the most troubling.
So what will Comcast Corporation buy next? For long-term shareholders, hopefully nothing. As InvestorPlace contributor Will Ashworth argued in March, these convoluted deals are no guarantees. More importantly, the markets are sending clear signals.
CMCSA stock was beaten up badly since the underlying company announced its intentions. Worse yet, the pain is only beginning if Comcast insists on gambling its future.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
