July 25, 2018

Breakingviews: Disney Win Fox Fight

by Breakingviews.

Comcast Chief Executive Brian Roberts is swallowing his ego a second time. The controlling owner of the U.S. cable firm decided not to top rival Walt Disney’s $71 billion bid for some assets of Rupert Murdoch’s Twenty-First Century Fox. He also backed down from an aggressive tilt at the Mouse House 14 years earlier. Given the eye-watering price Disney is paying, Roberts and his shareholders should come out the winners.

Instead, Comcast will focus across the Atlantic and attempt to win a bidding fight with Fox for pay-TV outfit Sky, for which Roberts has so far bid around $34 billion.

Disney CEO Bob Iger initially agreed in December to pay Fox shareholders $52.4 billion in stock for the media assets on offer. Comcast came back in June with a $65 billion all-cash bid just as the U.S. Department of Justice lost its case against AT&T’s merger with Time Warner. Disney countered with the current price, and Fox shareholders are due to vote on the transaction next week.

In short, Roberts has forced Iger to pay more than 35 percent over his original offer and pushed the leverage-shy Disney boss into new territory: Breakingviews calculates that after the deal closes, Disney’s debt will rise to more than three times EBITDA even if Fox doesn’t first buy the 61 percent of Sky it doesn’t own.

Aside from the balance sheet, Iger must also successfully integrate the sometimes rough-edged Fox properties with Disney’s pristine and family-friendly brand. Iger has succeeded with prior acquisitions Pixar, Marvel and Lucasfilm, but Fox is on a larger scale and the deal comes at much more perilous time for traditional media firms under assault from the likes of Netflix.

Roberts’ hostile lunge at Disney in 2004, aiming to capitalize on his target’s weakness at the time, met resistance and shareholder doubt. He was smart to walk away. Since the start of 2008, Comcast’s annual total return to shareholders has been a notch or two higher than Disney’s. Roberts yet could undo some of the good if the bidding for Sky – already pricey – goes higher. For now, he can claim his second loss to Disney as victory.


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