News Disney and Fox come to terms -- announcement soon; huge IP acquisition

[Sirwalterraleigh]

You gotta take this analysis with a grain of salt...it is CNBC....but these analysts have been pretty common sense over the years.

The video paints a simple layman’s term description of where the players are at...and ultimately what they think will happen to content companies...

It also seems clear Comcast is going to bleed this out...even if it means “winning the deal” but then maybe killing it? At a minimum...they’ll drive the price north...I’d say at least one more round.

https://www.cnbc.com/video/2018/06/...ox-assets-more-than-comcast-says-analyst.html

 

[Stripes]

The rumor this morning on CNBC is comcast is trying to get a third party tech company to join them in the Fox bid. If that is true it's over and Disney won because if a tech company were interested they would buy Fox themselves. Google, Apple and Amazon could buy Fox with their petty cash if they wanted.

Those companies are not interested in buying big studios. Many have already said so. It just doesn't make sense for them for a whole host of reasons.

 

[Rodan75]

Those companies are not interested in buying big studios. Many have already said so. It just doesn't make sense for them for a whole host of reasons.

And they are seeing a lot of success in just building what they need, in regard to original content. They all know the studios will license old content because they need the revenue.

 

[Stripes]

If Comcast bids $90 billion cash, then the whole board should be ousted.

As an aside, I really don't see why Roberts is unwilling to bid stock. His family's stake is undilutable in voting power (B shares control 33.3% of Comcast's voting power no matter how many A shares there are; the A share class controls the remaining 66.7% regardless of share count).

Comcast should just step away if they insist on sticking to all-cash; there's no rationale for an all-cash bid at these prices. Comcast would approach $240 billion in total debt if they acquired Fox and Sky at those levels. That's just malpractice.

Personally, Roberts has nothing to lose by issuing stock, but shareholders would be ticked, and that would bring the stock down significantly.

 

[Stripes]

I'm sure those that have been following this heavily have already dissected this, but for others, here's the transcript from the $71 billion bid conference call.
https://www.thewaltdisneycompany.co...018/06/investor-call-transcript-2018-0620.pdf

 

[MisterPenguin]

I'm sure those that have been following this heavily have already dissected this, but for others, here's the transcript from the $71 billion bid conference call.
https://www.thewaltdisneycompany.co...018/06/investor-call-transcript-2018-0620.pdf

Interesting... Iger says that their current deal with Fox precludes breaking up the Fox package for sale and splitting it with Comcast.

So, let's put all that speculation to bed. It's winner-take-all.

Also interesting... Iger specifically calls out P&R as not going to suffer any lack of reinvestment in order to make this happen. They'll use their balance sheet strategically (IOW, borrow) to make both the purchase and the continuing reinvestment happen.

 

[HauntedMansionFLA]

Interesting... Iger says that their current deal with Fox precludes breaking up the Fox package for sale and splitting it with Comcast.

So, let's put all that speculation to bed. It's winner-take-all.

Also interesting... Iger specifically calls out P&R as not going to suffer investment in order to make this happen. They'll use their balance sheet strategically (IOW, borrow) to make the purchase and continued reinvestment happen.

When will the smoke clear and we have a winner?? It’s been fun reading the posts hear on this thread.

 

[ToTBellHop]

Interesting... Iger says that their current deal with Fox precludes breaking up the Fox package for sale and splitting it with Comcast.

So, let's put all that speculation to bed. It's winner-take-all.

Also interesting... Iger specifically calls out P&R as not going to suffer investment in order to make this happen. They'll use their balance sheet strategically (IOW, borrow) to make the purchase and continued reinvestment happen.

And this is America. CEOs never lie here.

They are already making P&R adjustments.

 

[Sirwalterraleigh]

And this is America. CEOs never lie here.

They are already making P&R adjustments.

It shocks me everytime someone believes what a billionaire says...misdirection is the one character trait they have to have. They don’t survive without it.

All of the WDW projects have been cut under iger with the exception of Star Wars - that we know of - and that one is a clone development so it doesn’t make sense to cut unless under financial strain.

Trust the shovels...which we have a lot to watch unfold...never trust the rhetoric.

 

[MisterPenguin]

And this is America. CEOs never lie here.

They are already making P&R adjustments.

Yeah, but weren't they consistently doing that before Fox went up for sale?

 

[Stripes]

Interesting... Iger says that their current deal with Fox precludes breaking up the Fox package for sale and splitting it with Comcast.

So, let's put all that speculation to bed. It's winner-take-all.

Also interesting... Iger specifically calls out P&R as not going to suffer any lack of reinvestment in order to make this happen. They'll use their balance sheet strategically (IOW, borrow) to make both the purchase and the continuing reinvestment happen.

Just to clarify, Christine McCarthy, Disney's CFO, made that comment about P&R, not Iger.

 

[smile]

All of the WDW projects have been cut under iger with the exception of Star Wars

yep, just a smidge tho...
land stuff that may or may not appear in a hotel.

but there's tightness... when not? too many times, both ways.

 

[ToTBellHop]

Yeah, but weren't they consistently doing that before Fox went up for sale?

My understanding is that there are discussions of fat that would be trimmed specifically for this.

 

[Stripes]

My understanding is that there are discussions of fat that would be trimmed specifically for this.

"Fat" meaning temporary cuts to operations, or cancelled investments in new attractions?

 

[ToTBellHop]

"Fat" meaning temporary cuts to operations, or cancelled investments in new attractions?

Both. Of course.

But Hugh Jackman will be in the Avengers 5, so no harm done?

 

[pdude81]

Both. Of course.

But Hugh Jackman will be in the Avengers 5, so no harm done?

And there goes several million more dollars

 

[MisterPenguin]

Both. Of course.

But Hugh Jackman will be in the Avengers 5, so no harm done?

Not if there's a Hugh Jackman M&G!

 

[Sirwalterraleigh]

"Fat" meaning temporary cuts to operations, or cancelled investments in new attractions?

Hard to say...but anyone trusting the comments of a CEO superficially doesn’t appear to be a student of history

 

[Sirwalterraleigh]

Not if there's a Hugh Jackman M&G!

That’s an “exclusive ticketed event”

 

[Stripes]

I've been studying the numbers of what Disney would look like if they put out a $90 billion bid, assuming 50/50 cash/stock, and compared that to the impact of a $90 billion all-cash bid from Comcast.

Disney would increase their debt from their current bid of $74.79 billion to $84.14 billion. This would increase their leverage from 3.1x to 3.5x assuming 39% stake in Sky. (I didn't run the numbers including Sky simply because I think they'll give it up/sell it if they have to.)
This is something Disney would be comfortable with.

Disney would also have to issue about 96 million more shares at the midpoint of the existing collar for a total of 439 million new shares, this compares to initial and current bids of 515 million and 343 million shares, respectively. The midpoint is currently situated at roughly $104/share, about $2 dollars less than their current share price. This would mean that Fox shareholders would hold roughly 23% of the pro forma company. This is more than the current bid of 19%, but less than the initial bid where they would hold 25%. Disney should also be comfortable here.

Raising Comcast's bid to $90 billion all-cash would increase their debt from $170 billion to $195 billion, assuming there is no increase in their Sky bid, which there is likely to be, but I didn't include it for the sake of comparison. This would increase their leverage from 4.25x to 4.88x, in other words it would take them 5.36 years to pay down their debt to reasonable levels versus the 4.1 years of their current bid, assuming a decrease of half a turn of leverage per year.

With this model, Disney would be able to return to attractive leverage 2.76 years before Comcast. I should also note that going this high for Comcast would almost certainly devastate their credit rating.

Have fun picking this apart!

You guys should have checked my work

Looks like I used Comcast's EBITDA after synergies to calculate their leverage, but Disney's before synergies. In other words, it's actually a bit better for Disney/worse for Comcast than these numbers show. The post above has been edited with the correct figures.