The bidding war for juicy Twenty-First Century Fox (NASDAQ: FOXA) (NASDAQ: FOX) assets is heating up. Comcast (NASDAQ: CMCSA) stepped up on Wednesday afternoon, offering a buyout superior to Disney‘s (NYSE: DIS) original $52 billion stock deal.
Coming to the table with a $65 billion all-cash offer is going to make it hard for Twenty-First Century Fox to stick to its wedding plans with Mickey Mouse. Disney will likely have to sweeten its proposal, and the only one that would win in that kind of bidding war is Twenty-First Century Fox. Let’s go over some of the reasons Disney should just bow its head in defeat and move on.
1. Breaking up is profitable to do
There is no point in denying that the bulk of Twenty-First Century Fox’s businesses would look good on Disney. There are key Marvel, Lucasfilm, and even Avatar film rights involved that would help Disney’s theatrical and theme park strategies, and countless more savory puzzle pieces that Disney could cash in on in the future. However, it’s not as if Disney would walk away from this deal empty handed if Twenty-First Century Fox should decide to go elsewhere.
A $1.525 billion break-up fee would be due to Disney if Twenty-First Century Fox gets cold feet. Comcast has agreed to pay the fee on Fox’s behalf. Disney and Comcast are media behemoths, but even at that level, $1.525 billion isn’t chump change. It wouldn’t be a bad return for six months of work.
2. Wall Street never really liked the deal
The public gets why Disney would want all of these key media assets, and the market’s initial reaction was to bid up the stock of the family entertainment giant in mid-December, when the blockbuster deal was announced. It’s a different story now.
Disney stock is actually trading just below where it was when the deal was initially announced. The S&P 500 is up a modest 5% in that time — so it’s not as if Disney’s been an investing disaster — but it has seriously lagged the market since it found itself on bended knee exactly six months ago.
3. Disney can still negotiate with Comcast for key assets
Disney and Comcast are fierce competitors, and there may very well be some bad blood between the two titans since Comcast tried and was rebuffed in its unsolicited offer to buy Disney in 2004. There is still an opportunity for win-win peace, here.
Comcast is offering to pay a lot of money for Fox’s assets, and it can make some of that back by selling some of the pieces that are more valuable in Disney’s hands than its own. Side deals can also appease regulators in the process for approval, something that would cost Comcast $2.5 billion if antitrust agencies nix the acquisition.
Disney backing down could also be interpreted as a show of good faith on its part. It can raise its bidding card again, ultimately driving Comcast’s price higher — if not its own — but stepping off to the side lets Comcast win at its price. If Comcast thinks it shouldn’t reward that behavior by striking a deal to sell the rights to the upcoming Avatar sequels or the original Star Wars, it will be doing more for its ego than for its shareholders. Why cut royalty checks to Disney the way it already does with Marvel Super Hero Land merchandise at one of its Florida theme parks when it can be the one on the receiving end? Disney and Comcast can both get what they want, but the moment this becomes a bidding war, neither party outside of Twenty-First Century Fox will win.
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