With New Fox Bid, Disney Tries to Thread a Needle

Posted June 20, 2018 7:21 p.m. EDT
Updated June 20, 2018 7:22 p.m. EDT

Walt Disney has fired back in the fight for most of 21st Century Fox, with a $71.3 billion bid that tops an offer from Comcast. And the House of Mouse has managed to do so cleverly.

The basics of the deal

Disney is offering $38 a share, more than the $35 a share that Comcast offered last week, and more than the $29.54 a share Disney originally bid. Fox shareholders can choose either cash or newly issued Disney shares, though Disney will limit the overall payouts to half cash and half stock.

Disney’s original bid for Fox, which was announced in December, was all in stock. The company’s last huge media takeovers — of Marvel and Lucasfilm — were both in stock as well.

There’s no change to what Disney would acquire. It would take control of the 20th Century Fox movie and television studios, cable channels like National Geographic and FX, 22 regional sports networks, a 30 percent stake in the online video platform Hulu, 39 percent of the European satellite broadcaster Sky and control of the Indian broadcaster Star. “This reflects our continued belief in the strategic rationale of this transaction,” Bob Iger, Disney’s chief executive, told analysts on a conference call Wednesday.

Why that matters

The higher overall bid is notable. But the way it’s structured might be even more important.

Adding a cash component to the bid is a response to Comcast’s all-cash offer. It is meant to appeal to Fox shareholders, who simply want to be paid out now, rather than betting on the performance of Disney shares in the future.

But the Murdoch family is in a different position.

Receiving cash would expose it to a big tax bill, since Rupert Murdoch created the company and has enjoyed an enormous rise in the value of his holdings. And Murdoch does want in on the future: He has said that he thinks combining the Fox businesses with Disney would yield a media colossus that could take on streaming giants like Netflix and Amazon.

The option of still being paid in Disney stock appears to have been crucial in keeping the support of the Murdochs, as shown by Fox’s board signing onto the new offer. But the family represents only 17 percent of the shares that can be voted in this deal, so other investors will have to feel comfortable with it as well.

What shareholders appear to think

— Shares in Fox were up 6.4 percent in early morning trading, at $47.57. Shareholders could be betting that the battle between Disney and Comcast is far from over.

— Disney’s stock was up 1 percent in early morning trading, at $107.26, as investors may believe that the sweetened bid is financially sustainable.

— And Comcast’s shares were up 0.7 percent, at $33.04. That’s perhaps because of a hope that the company would walk away from an increasingly expensive bidding war.

What analysts think

Michael Nathanson, MoffettNathanson: “Before, the only outstanding question was whether Disney’s board and management would go to the mat on this transaction? We now know the answer is clearly yes!”

Ivan Deryugin, United First Partners: Any counter-bid by Comcast would likely be limited at $42 a share in cash, given the limits on debt that the cable giant could assume.

What’s next?

Comcast could still raise its offer again, though shareholders appear increasingly uneasy about how much debt the cable giant would need to win the bidding war. (But they can’t stop the company’s chief executive, Brian Roberts, from pursuing Fox over their wishes, given how much control he has over the cable provider.)

Disney executives could raise their bid even higher if necessary. The company’s chief financial officer, Christine McCarthy, told analysts that the company was financing the entire cash portion of the new offer through borrowed money, and asserted that its balance sheet remained healthy despite the extra debt.

Fox and Disney will reschedule votes on Disney’s takeover bid, which was originally set for July 10. That still gives Comcast time to consider its options — and Disney time to prepare another counterpunch.