A prominent media analyst Friday urged shareholders of Twenty-First Century Fox to delay voting on a hookup with Walt Disney until rival suitor Comcast has a chance to make a promised higher bid.
“Do not let Disney steal Fox from Rupert,” urged Rich Greenfield of BTIG Research — offering investors some food for thought ahead of a long holiday weekend. “We have yet to talk to a large Fox investor that does not prefer a meaningfully superior cash offer from Comcast to an all-stock bid from Disney – regardless of the tax implications,” he wrote in a blog post.
Greenfield’s assessment of why is a somber one for traditional media companies. The only point in owning their stock is M&A potential.
“While Rupert Murdoch may fancy the prospect of being the largest shareholder of Disney while also running new Fox, the reality is exiting for cash now and reinvesting the after-tax proceeds away from legacy media is the optimal path forward,” he said. “There is no fundamental investment thesis in legacy media,” which is being pummeled on the advertising and subscription fronts.
Disney might argue otherwise. Its earnings soared last quarter on studio revenue buoyed by Black Panther and divisions from media networks to theme parks beat expectations. Chairman Bob Iger has grown the company with a stream of acquisitions from Pixar to Marvel to Lucasfilm.
But a Fox buy seems less certain than before after Comcast delivered a public save-the-date deal card earlier this week. The media giant announcing that it’s considering, and is in advanced stages of preparing, an offer for the businesses that Fox agreed to sell Disney in December for what was then worth $52.4 billion in stock. Comcast didn’t actually make its offer (which is expected to be about $60 million) but specified that when it comes, it will be call-cash and represent a premium to Disney’s.
Comcast is likely waiting for a verdict in the AT&T-Time Warner case before moving. But Fox is said to be planning a shareholder vote this summer on the Disney merger — and it’s not clear which will come first.
A cash deal has major tax implications and the capital gains tax hit would be particularly massive for Rupert Murdoch, whose family holds a 17% stake in Fox.
“We continue to believe if Disney wants to win both Fox and Sky, it can given its balance sheet capacity. However, it is worth remembering that Disney has never been in a bidding war for a major acquisition in its history. In turn, the battle for Fox and Sky puts the company in uncharted territory,” wrote Greenfield.
