Breakingviews: Disney in Fox Fight

Twenty-First Century Fox can squeeze another $5 billion out of its suitors – or so the market seems to be suggesting. Back out the bits of Rupert Murdoch’s media empire that dueling bidders Comcast and Walt Disney don’t want, adjust for the time value of money, and investors are expecting Fox’s crown jewels to fetch as much as $76 billion, or $41 a share.

Disney is ahead by a nose after offering $71.3 billion, or $38 a share, this week for Fox’s entertainment and international bits. Comcast may counter, but either winner leaves behind some of Fox’s assets, meant to be spun out to shareholders, with $2.8 billion of EBITDA in the year ending next June, based on Disney’s forecasts and Breakingviews’ own calculations. Put that on a fairly conservative multiple of eight times, roughly that of similar media peers, and it’s worth $22 billion.

The Fox rump will take on some debt, but also get a tax perk that pretty much offsets it, as far as shareholders are concerned. Deduct the $22 billion from Fox’s $91 billion market value today, and it suggests the bits on the block are being valued at $69 billion – in today’s money. It’s likely to be a year before any deal closes, and investors have in the past seen roughly 10 percent growth in their Fox investment a year. By that token, Fox’s share price implies $76 billion is the theoretical headline price for the winning bid.

Put that into perspective: just a month ago, Disney seemed to have clinched Murdoch’s goodies with just $28 per share. Since then Comcast waded in, Disney hit back again, and discipline left the building. The numbers could shift further, but the share price sends a clear message that investors reckon the fight isn’t over.

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