Twenty-First Century Fox Inc (NASDAQ:FOXA) is getting a lot of attention these days from two entertainment powerhouses. First, Walt Disney Co (NYSE:DIS) offered an all-stock deal for most of Fox’s film, television, cable channels and National Geographic and FX properties, as well as its regional sports networks. Then, after the Fox board approved the terms of the deal, cable giant Comcast Corporation (NASDAQ:CMCSA) — and owner of NBC and Universal — rolled in and dropped an all-cash offer on the table that’s worth more than the Disney bid.
Fox says it is committed to pursuing the deal with Disney and prefers an all-stock offer for tax reasons, but its fiduciary responsibility to its shareholders means that it will do its due diligence on the Comcast deal.
Both DIS and CMCSA are similarly sized firms, both with market caps around $150 billion. Disney has a much bigger brand and global presence and many of Fox’s parts are very good fits with Disney strengths, and can also help with some of its weaknesses.
For example, the all-sports network ESPN has been a millstone around Disney’s neck for a while now. But infusing it with Fox sports networks and gaining access to British broadcaster Sky would certainly add eyeballs — and revenue — for European soccer, rugby and cricket, and international tournaments.
Also, British authorities won’t let a Fox-Disney merger go through unless Sky is part of the deal.
On the theatrical side, Fox and Disney, according to The Guardian, accounted for 45% of box office sales last year. Comcast brought in about 9% of box office sales.
Yet, while that combination is attractive, it may be a red flag for U.S. regulators.
Also, bear in mind that Disney has never swallowed any company as big as Fox. That could bring its own challenges trying to integrate two huge international organizations.
Add to all this that FOXA reported earnings yesterday and they were mixed in the sense that while they beat expectations, the results almost across the board were lower than last year. Its television division was hit the hardest.
However, its cable programming was its saving grace. And that is likely the driving force behind CMCSA’s interest in Fox.
For now, however, with two sizable suitors determined to win the attention of Fox, the real winner in the short term will be FOXA. This has all the signs of a bidding war.
With DIS and CMCSA stocks, whether they win or lose this battle – in the boardrooms or the courts – they stand to be buffeted by fickle markets in the short term.
Over the long term, both DIS and CMCSA have powerful positions in their respective markets and whether they get FOXA or not, they should continue to be dominant forces. Also remember, whoever is the winner will have to integrate this big organization and get it running pretty quickly, which is not an easy task.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.