It was meant to be the cherry on top of a chocolate sundae, a final act to solidify Bob Iger’s place in American business history. But then Comcast Corporation (NASDAQ:CMCSA) got into the action, and now the Comcast-Fox deal puts this scenario in real jeopardy.
There are several ways this plays out, all of which will make Twenty-First Century Fox Inc (NASDAQ:FOXA) shareholders very happy, and investment bankers even happier.
Iger Could Match Comcast Bid
Comcast has offered Fox $65 billion in cash, plus the assumption of $13 billion in debt for its movie and TV production assets. Walt Disney Co (NYSE:DIS) originally offered $52 billion in stock. To meet Comcast’s number, Iger would have to add approximately $6 per share to its bid.
That’s the easy part.
If Disney chooses to maintain an all-stock bid, it would have to issue another 87 million shares on top of the 515 million it was planning to issue in its original offer. Together, that would be 602 million shares, increasing total shares outstanding by 39%.
Under the previous deal, Fox shareholders would own 25% of Disney with the Murdochs’ share around 5%. Under the Comcast deal, Fox shareholders would no longer have an investment in any company.
The Murdoch family owns 310.9 million shares in Fox, so the question is whether they feel an extra $1.8 billion from Comcast is worth giving up the 5% in future Disney earnings they would get from the all-stock deal.
Personally, I see the Comcast-Fox deal being less attractive in terms of the future potential of the combined entity than a Disney-Fox tie-up — and I bet the Murdochs do, too.
So, in a perfect world, Iger matches the Comcast offer staying with an all-stock bid, and the Murdoch family get a little wealthier on paper while maintaining a 5% interest in a massive media company that’s already launched one video-streaming service and will launch another in 2019.
The World’s Not a Perfect Place
The problem from Iger’s perspective is two-fold. He doesn’t know how high Comcast CEO Brian Roberts is willing to go to steal the Fox assets and whether there are other interested parties ready to spoil his legacy.
He has no control over either situation, although B. Riley FBR analyst Barton Crockett believes Disney’s business will be fine without Fox. Comcast, on the other hand, really wants Fox’s international assets and revenues outside the U.S. This means Roberts is likely to have kept some dry powder for a second, higher bid should it be necessary.
As for other interested parties, the analyst sees companies like Facebook, Inc. (NASDAQ:FB) and Apple Inc. (NASDAQ:AAPL), that have been less successful at producing original content, possibly jumping into the fray.
I’m not sure that theory holds water because if either company was interested, it already would have approached Rupert Murdoch about his level of interest in an offer.
Bottom Line on Comcast-Fox Deal
I think Iger will stick with an all-stock offer and match Comcast’s bid but won’t go any further, leaving it in the hands of Comcast to win the day.
This has the makings of its own movie.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.