After Beating Comcast to Fox, Should Disney Take a Victory Lap?

After Comcast officially bowed out of the bidding war for most of 21st Century Fox, Disney CEO Bob Iger spoke of his “incredible enthusiasm” at the prospect of paying $71.3 billion — regulators willing — to acquire the Fox film and TV studio, Nat Geo, FX, Star India and more.

But it might not be the victory Iger imagined, considering Rupert Murdoch and sons Lachlan and James had agreed in December to sell Disney those same assets for only $52.4 billion.

Disney will pay $38 a share for its chosen Fox assets, split 50-50 in cash and stock, and it will also take on about $13.8 billion of Fox’s net debt, implying a total transaction value of roughly $85.1 billion.

Just two years ago, all of Fox was valued at just $44 billion, and Disney won’t be getting Fox News, Fox Business Network, FS1, FS2 or the Fox broadcast network. Those remaining businesses will be rolled into a company that is for now being referred to as New Fox.

Still, many observers think Iger was right to outbid Comcast and its CEO, Brian Roberts.

“On a multiples basis, the price is less than they paid for Lucasfilm, which by any measure has been a home run acquisition,” said Todd Klein, a mergers and acquisitions expert at Revolution Ventures, AOL co-founder Steve Case’s investment firm.

“If they fail to achieve the ($300 million) synergies over time, then we’ll all be able to look back and say they overpaid,” said Klein. 

Beyond the prospect of Disney paying far more than it initially bargained for in its partial merger, there’s the matter of Sky, the satellite broadcaster that boasts 23 million subscribers in Europe.

Disney was set to acquire Fox’s 39 percent stake in Sky, and Iger had called that asset a “crown jewel” of the entire transaction. Now, though, Comcast, free from its bidding war for the bulk of Fox, has its sights set on scooping up all of Sky, which also has the very lucrative rights to English Premiere League soccer and some popular original programming.

Fox initially offered to buy the 61 percent of Sky it didn’t already own back in December 2016 in a deal valuing all of Sky at $23.2 billion, but then Comcast said it wanted the whole company for $32 billion, so Fox upped its bid for a valuation of $32.5 billion, only to be trumped by Comcast at $34 billion.

“As Comcast has made clear, that’s the asset they’ve really wanted all along, so it seems much less likely that Comcast will withdraw without at least a few more rounds of bidding,” MoffettNathanson said Thursday in a research note.

Comcast wants Sky to beef up its global offerings while Sky “would be desirable to Disney as a foundation for launching its family branded and ESPN streaming businesses in Europe,” said Matthew Harrigan of the Buckingham Research Group.

The U.S. Justice Department has blessed the Disney-Fox partial merger (on the condition Disney would then sell the 22 Fox regional sports networks it would acquire) though more regulatory scrutiny is ahead, and shareholders are expected to approve the transaction at a meeting on July 27.

After that, the bidding war for Sky could resume, and Comcast has more flexibility now that it has given up on buying much of Fox and assuming billions more in debt.

“We are slightly inclined to believe that Comcast will be the winner for Sky at near its current bid price,” said Harrigan.

In its quest to help Fox get regulatory approval for Sky and shut out Comcast, Disney has already offered to buy “Sky News,” given regulators worried about Fox getting a hold of it then having too much media power in Europe. And while Comcast wants all of Sky, it could settle for just over 50 percent of it in order to be its controlling stakeholder.

“Sky is important to Disney, but for both ego and strategic reasons it’s extremely important to Comcast. Disney might support Fox raising its offer just for the sport of doing to Brian Roberts what he did to Disney,” said Klein.

And finally, while Iger’s contract is set through 2021, some lower-level Disney and Fox employees could be out of work once the companies are combined and the merged entity seeks those operating synergies it has promised.

“While the creative executives — who both management teams know are the lifeblood of the industry — at both companies are probably fine, duplicative corporate functions will be rationalized,” said Klein.