It seems as though Disney fans were prematurely celebrating the acquisition of Fox by the Walt Disney Company.
In a somewhat unexpected turn of events, Disney rival Comcast offered Fox $65 billion in cold, hard cash last week. Disney’s offer for the Fox assets was a (comparatively) paltry $52 billion in stock.
Does this mean that longtime Disney rival Comcast (who owns the Universal theme parks) could snatch Fox out from under the Mouse? It’s possible, and Wall Street is taking notice as Disney stock has recently been downgraded.
Fox’s board meets Wednesday to discuss Comcast’s bid, and would engage in talks if it deems the offer superior. If that happens, Disney has five days to match Comcast’s offer.
Disney shares were down 2 percent in early trading Monday, Comcast was down 2 percent and Fox was down 0.8 percent.
Earlier Monday, Pivotal Research Group downgraded Disney shares to a sell rating, saying it is boxed into a corner on the bidding, and a higher deal price would reduce the value of Disney to its shareholders. On the flip side, losing the deal would also be a negative because Disney wouldn’t be able to realize the savings it wants to produce from the transaction, the research firm wrote.
Comcast’s bid came a day after a federal judge cleared the way for AT&T’s acquisition of Time Warner, a deal the government had tried to block on competitive grounds. The decision was expected to set off a new wave of big company mergers.
The Fox assets would boost Comcast’s presence internationally and shore up its entertainment units at a time when consumers are shunning traditional cable operators in favor of internet-based video streaming such as Netflix.
Disney is expected to add cash to its initial offer to sweeten the deal. Earlier this month, Disney announced that it would let shareholders vote on July 10 as to whether or not to proceed with the Fox acquisition.
However, the Comcast bid might throw a wrench into this scenario.
According to analysts, the Fox deal puts Disney in an “unwinnable” scenario.
“The stock’s recent run-up fails to reflect that a higher price paid for Fox’s Entertainment assets would reduce the value of Disney to its shareholders,” wrote analyst Brian Wieser. “Alternately, the absence of completion of the transaction would also be negative for Disney as it would mean the company would be unable to realize the synergies it expects to produce from the transaction.”
Disney is betting heavily on their upcoming streaming service, and missing out on acquiring Fox could mean the difference between winning the streaming content wars and not. However, overpaying could also damage the company, and dilute the Disney brand.
In the wise words of Pooh, “Oh, bother.”
Stay tuned to The Kingdom Insider for more updates on the Disney/Comcast battle over Fox.
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