Disney vs Comcast: Why the Bidding War for Fox Has Only Just Begun

“It’s a race to $100 billion in enterprise value,” M&A expert tells TheWrap

Now that the ball is back in Comcast’s court in its battle with Disney over 21st Century Fox’s film and TV assets, analysts expect Comcast to submit another, more expensive bid.

Comcast’s next offer is expected to be roughly 15 percent higher than Disney’s latest $71.3 billion offer, according to analysts who spoke with TheWrap. That’s somewhere in the low-$40s per share. Disney’s new bid on Wednesday was for $38 per share, a 50-50 split between cash and stock, whereas Comcast’s $65 billion offer last week was all in cash.

Laura Martin, an analyst for Needham & Company, predicts that any new bid from Comcast would be similar to the stock-cash split that Disney offered. “I think they’ll try to make it look as much like the Disney deal as possible.”

The question now is just how much more expensive will this bidding war get? Fox pushed back a planned July 10 shareholder meeting that was supposed to see a vote on the Disney deal. The company said the postponement was “to provide stockholders the opportunity to evaluate the terms of Disney’s revised proposal and other developments to date,” but it also gives both Disney and Comcast more time to one-up each other.

“It’s a race to $100 billion in enterprise value,” Todd Klein, partner at Revolution Growth, told TheWrap. “Who is going to get their first? Whose got the cleanest deal to $100 billion?” Disney’s deal would see the company assume roughly $13.8 billion of 21st Century Fox’s debt, which ups the total value of the offer to $85.1 billion, so we’re not that far off.

Both companies are vying for a portfolio that includes the Fox film and TV studios, U.S. cable networks including FX and regional sports channels, international properties including Sky PLC and Star India as well as Fox’s one-third stake in the streaming service Hulu.

Analysts are divided on which company will eventually emerge victorious.

“Disney has the superior balance sheet, cost of debt, equity and rationale combined with fewer regulatory hurdles to emerge victorious over Comcast in a bidding war,” MoffettNathanson analysts Craig Moffett and Michael Nathanson wrote in a research note on Wednesday.

But Martin was adamant that Comcast holds the upper hand here. “If Comcast re-bids, the next bid would turn Disney into a junk bond rating for the first time in its history. They have to figure it out.” Companies that have a junk bond rating are seen as riskier investments for potential shareholders, because they would essentially be seen as borrowing more money than they can afford to pay.

Comcast doesn’t care. Half of its life, it was a junk bond rating,” continued Martin.

Disney CEO Bob Iger has been successful in acquiring valuable properties such as LucasFilm and Marvel, but Martin points out that in those cases he didn’t have to fight off other suitors. Much of Disney’s success is tied to the fact that the company doesn’t typically get into these high-stakes bidding wars.

“I don’t think this is a war Disney can win. He’s never bid for an asset before. He uses his awesome personality to get exclusive deals,” she said. “Brian Roberts has been in a lot [of bidding wars]. He’s bought a lot of cable companies.”

Klein said that for Fox shareholders, they may be inclined to sit back for awhile and let these two companies continue to try and out-flank each others.

“What they really want is for this to go another two to three big rounds and have Disney prevail,” said Klein. “At a minimum, even if Comcast is ultimately unsuccessful, they have stretched Disney right to the brink of their comfort zone.”

Comcast declined to comment when reached by TheWrap.