It’s official: Iconic telco and television player AT&T Inc. (NYSE:T) will be allowed to acquire television and movie studio Time Warner Inc (NYSE:TWX). U.S. District Judge Richard Leon finally gave the long-belabored matter the green light on Tuesday.
The ripple effect has already sent owners of other media stocks into something of a frenzy. Namely, experts believe the entire industry — media and medium — will view the ruling as tacit permission for other such companies to make similar deals.
There’s certainly a proverbial big Kahuna among such unions, though. That is, owners of Twenty-First Century Fox Inc (NASDAQ:FOXA) have every reason to believe that Walt Disney Co (NYSE:DIS) and Comcast Corporation (NASDAQ:CMCSA) could kick off a bidding war for the television and film outfit. Indeed, by the time you’re reading this, it’s possible Comcast has already outbid a standing offer from Disney to acquire Fox … the same Fox that’s also looking to buy the 61% of the U.K.’s television giant Sky that it doesn’t already own.
Of course, Fox’s purchase of Sky assumes Comcast doesn’t make a better direct offer for Sky instead, rather than aiming at it via a Fox deal — an offer that has also been on the table of late.
Ask ten different observers how this is all going to pan out, and you’ll likely get at least five different scenarios. All ten proposed scenarios, though, ultimately peg Comcast as making a play for Twenty-First Century Fox.
That leaves Walt Disney with a tough decision to make.
It’s not necessarily a question of financial wherewithal. As Revolution Growth partner Todd Klein opined, “They could substantially improve bid if they wish … Disney has a relatively clean balance sheet and a healthy stock price.” Disney’s present offer values the Fox assets in focus at $66.1 billion (minus the assumption of Fox’s debt), would effectively be fully paid for with $52.4 billion worth of Disney stock.
Comcast is reportedly prepping a $60 billion counter-offer … all cash. It matters. As BTIG Research analyst Rich Greenfield noted late last month, “Why own Disney when you can buy any stock you want with cash?”
Weighing the Upside of Each Combo
It’s possible, however (although less than likely), that present Fox shareholders could embrace the idea that of all the media stock to own that would be better than cash, Walt Disney with Fox in its corner could be it.
Comcast, which owns NBCUniversal, could certainly do much with Fox, which operates several TV channels and has a strong presence on the big screen. Aside from bringing some much-needed movie magic to Universal’s respectable-but-not-thrilling movie-making machine that owns rights to the Jurassic Park franchise — Fox has X-Men and Avatar — Fox also has a myriad of sports channels that could work nicely under the same umbrella NBCSN is working under.
Owning Fox would also give Comcast majority control of streaming venue Hulu, and by default prevent part-owner Disney from leveraging Hulu as a distribution venue … not that Disney really cares.
The company was already preparing a sports-oriented and a general entertainment streaming service long before now. Indeed, it had already warned Netflix, Inc. (NASDAQ:NFLX) to not expect access to its new content going forward.
A Disney/Fox team-up could also arguably (at least partially) rekindle Disney’s beleaguered ESPN by joining it with Fox’s 44 regional sports networks. Nevertheless, Fox’s live baseball and football contracts would remain with the part of Fox that isn’t being targeted by Walt Disney, meaning it’s still not the proverbial “killer app” it needs from its sports business.
A Disney/Fox combo would become a monster at the box office though, and in your living room. Disney owns the bulk of Marvel’s most popular lineups, like the Avengers, plus the Star Wars franchise. Fox owns, as was noted, a less-riveting record of theatrical success (though is doing reasonably well with Deadpool), but is killing in television with FX-branded channels and National Geographic channels, plus the overarching Fox broadcast network.
Fox News won’t be able to join the Disney family, if that’s the deal that ends up going down, due to likely regulatory hurdles. Still, it’s a formidable matchup.
The largely unheralded prize in all of this mess, ironically enough, is the acquisition of Sky and its European customers. Disney is bidding for Fox in the assumption that it will eventually own Sky, but as was noted, Comcast is also mulling a purchase of Sky as well. Sky’s vast array of programming combined with that of Disney or Comcast could be spun into a package nobody wants to compete with.
Bottom Line for All Media Stocks
Realistically speaking, Comcast is likely to win a bidding war simply because it’s less concerned about the cost and subsequent burden it would create even though Disney could arguably do far more with Fox’s key assets … particularly in terms of building a streaming platform that competes with Netflix. Disney, ironically, will probably miss out on the opportunity because it’s likely to exercise too much spending discipline.
Don’t think for a minute this is where the M&A story among media stocks ends though. With AT&T already owning DirecTV and now being allowed to acquire Time Warner thanks to a ruling with no major restrictions or caveats, the previous lines between media distribution, media creation and content licensing have been completely wiped away. This is just the beginning of a heated M&A race, with all players knowing once-unthinkable partnerships are now going to be permitted.
As of this writing, James Brumley held a long position in AT&T. You can follow him on Twitter, at @jbrumley.