As Comcast Looks To Sky, Will Disney Keep Up The Fight?

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As The Walt Disney Co. celebrates the end of its costly bidding war with Comcast Corp. over 21st Century Fox, attention shifts to a secondary front across the Atlantic.

Comcast said it plans to continue its pursuit of Sky, the European satellite broadcaster whose direct relationship with 23 million customers in seven countries represents an opportunity for the U.S. cable giant to extend its global reach. While Comcast is bidding for the whole of Sky, Fox has been working for years to secure the 61% of the pay-TV company that it doesn’t already own.

The question remains: will Disney, in inheriting the Fox position in Sky, leave Comcast to collect the consolation prize in the multi-billion-dollar bidding war? Or will it continue fighting for an asset that CEO Bob Iger described as a “crown jewel” among Fox’s assets?

“We don’t think it would be a blow to Disney’s long-term strategy if they ultimately lose Sky to Comcast,” noted Cowen & Co. analyst Doug Creutz. “As Disney already has high quality content, the ability to create more high quality content, and the ability to launch premium OTT products globally.”

Comcast abandoned its pursuit of Fox earlier today, just one week after the Justice Department said it would appeal the antitrust ruling in the AT&T-Time Warner merger. The decision seemed to herald the end of Comcast’s dark-horse bid for Fox, which one analyst dubbed both “wrong-footed” and “quixotic.”

Like AT&T-Time Warner, a combination of Fox and the Philadelphia-based cable giant would represent the kind of vertical merger of distribution and content that the DOJ argues unfairly tilts the competitive playing field and puts consumers at a disadvantage.

But it wasn’t the only factor.

Media mogul Rupert Murdoch, who over three decades assembled the Hollywood entertainment colossus that is Fox, seemed to clearly favor Disney and Iger, the affable CEO with whom he enjoys a personal rapport. Comcast CEO Brian Roberts, meanwhile, has been branded the industry’s boogeyman because of the company’s tough stance in negotiating carriage deals with content companies.

Murdoch also seemingly benefitted from President Trump’s admiration; with the Disney merger sailing through most anti-trust reviews in a breathtaking six months. A month after Trump’s antitrust forces filed suit to stop AT&T’s deal, the president telephoned Murdoch to congratulate him on the deal. All in all, the deck seemed stacked in favor of Disney.

So, Comcast turned its attention skyward, increasing its offer for the European satellite distributor to £14.75 a share last week, valuing the company at $34 billion. That’s a 5% premium over Fox’s most recent £14.00/share offer to purchase the 61% of shares in Sky that it doesn’t already own.

“Comcast has made clear that’s the asset they’ve really wanted all along,” wrote Craig Moffett, a telecom analyst for MoffettNathanson. “So it seems much less likely that Comcast will withdraw without at least a few more rounds of bidding.”

Disney could simply walk away from Sky, sell its stake and recoup of the 35% premium it was forced to pay for Fox’s film and television assets, over its initial $52.4 billion offer, to claim the prize from rival Comcast. Though some on Wall Street think that’s unlikely.

“While it is certainly possible that Fox (and in turn, Disney) is going to walk away from Sky and not match/exceed Comcast’s offer, it does feel hard to believe,” wrote BTIG analyst Rich Greenfield.

Fox’s current bid for the remaining shares of Sky would add $19.5 billion to Disney’s acquisition costs, Greenfield calculates. Increasing the offer by £1 would add $1.5 billion of extra debt, and $60 million in annual interest costs, Disney has said.

“Why give up, when the overall cost differential is effectively 1.1% to Disney?” notes Greenfield.

Not every analyst is sold on the purported benefits of Sky to Comcast. Moffett notes that the satellite TV provider is vulnerable to the same disruptions by Netflix and other streaming services as Comcast itself.

“Sky does have an impressive collection of proprietary affiliate deals, Premier League Football is only the most notable,” Moffett writes. “But the problem is that none of these exclusives can be counted on to last. Disney (and with it, Fox) have already made clear their intention to go direct-to-consumer. And, as ew noted last week, Facebook just bought the rights to the Premier League in Laos, Cambodia and Thailand.”

“Absent these exclusives, Sky is, well, just satellite TV.”

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