RSoxNo1
Well-Known Member
Where are you seeing Fox's option to back out? I see Disney has a $2.5 billion obligation if the deal is dropped by regulatory agencies.
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News Disney and Fox come to terms -- announcement soon; huge IP acquisition
- Thread starter ohioguy
- Start date
imarc
Well-Known Member
Here's one article that mentions a fee if either side walks away.
http://variety.com/2017/biz/news/disney-fox-breakup-fee-2-5-billion-regulators-1202640772/
Forget the Marvel themepark rights. That has nothing to do with this deal. The only way it could come up is if Disney gets Fox and Comcast gets Sky. The 39% of Sky that Disney would own could be traded for Comcasts share in Hulu, Marvel rights both themepark and Hulk movie distribution and lots of cash. Sky is worth so much more than Hulu. I doubt any of that will happen though because Comcast has lost over 30% from it's high since their merger rumors came out. BTW that totals 60 plus billion lost on paper. Wall Street just loves Comcasts idea of the merger.
Stripes
Premium Member
Just a note: Iger seemed content letting Comcast getting 61% of Sky on CNBC today, while remaining firm on the Fox merger.
I saw that and listened to the conference call. Iger still wants it all and may get it. Comcast could wind up with 61% of Sky but the 23 billion will wind up as a wash to their market cap.
the.dreamfinder
Well-Known Member
James Murdoch isn’t coming to Disney.
Stripes
Premium Member
I honestly believe this leak was coordinated to get a reaction out of Iger. Roberts wanted to see if he would put up a fight.
I mean, the day before Disney earnings? Kinda fishy. Anyway, as I've said it's a very, very steep hill for Comcast. Not only do they have to bid high enough to overcome the ensuing tax hit, they'd also have to plonk down $1.5 billion to reimburse Fox's break-up fee, which their shareholders would be ticked over. The obstacles are far too numerous.
I mean, the day before Disney earnings? Kinda fishy. Anyway, as I've said it's a very, very steep hill for Comcast. Not only do they have to bid high enough to overcome the ensuing tax hit, they'd also have to plonk down $1.5 billion to reimburse Fox's break-up fee, which their shareholders would be ticked over. The obstacles are far too numerous.
happycamperuni
Active Member
The main obstacle for Comcast is the AT&T-TimeWarner merger. If that gets banned by the judge next month, then Comcast won't bid for Fox's assets. But if that does get the greenlight, then Comcast will bid.
Comcast would probably have a 50-50 shot given that the Murdochs would be pressured by their shareholders to accept a much higher bid.
Also, the recently passed tax reform in the US make an all-cash offer much more appealing than in 2017 for a steeply appreciated asset, so we have to see what the offer terms are.
Comcast offering $90 billion in cash (plus assuming another $15-20 billion in debt) for Fox's assets and Sky means that Disney would have to raise their offer at least 20% to prevail.
I don't think Disney's shareholders will want that much dilution if Disney is sticking to an all-share bid. Disney might have to add at least $15 billion in cash to their bid to make the terms work.
Either way, if the AT&T-TimeWarner merger goes through, Fox's shareholders will be much richer as a result.
Comcast would probably have a 50-50 shot given that the Murdochs would be pressured by their shareholders to accept a much higher bid.
Also, the recently passed tax reform in the US make an all-cash offer much more appealing than in 2017 for a steeply appreciated asset, so we have to see what the offer terms are.
Comcast offering $90 billion in cash (plus assuming another $15-20 billion in debt) for Fox's assets and Sky means that Disney would have to raise their offer at least 20% to prevail.
I don't think Disney's shareholders will want that much dilution if Disney is sticking to an all-share bid. Disney might have to add at least $15 billion in cash to their bid to make the terms work.
Either way, if the AT&T-TimeWarner merger goes through, Fox's shareholders will be much richer as a result.
Stripes
Premium Member
If Comcast follows through, and Fox's board takes them up on their offer (unlikely, but possible), I have no doubt that Disney will add cash to their offer to prevent further diluting their stock.
Disney wouldn't have to raise their offer by much, considering 1. They were just paid a free $1.5 billion 2. Most of Disney's offer would be tax-defered.
When you consider those two factors, Comcast's potential offer isn't much greater than Disney's, if at all considering we don't know whether Comcast would assume Fox's debt.
happycamperuni
Active Member
The Murdochs won't have that much choice if Comcast's offer is clearly superior. As far as this situation goes, they only control 17% of the vote in a sale of significant assets (a sale of the majority of a corporation's assets requires a vote across share classes, so Murdochs' 40% voting control won't apply).
And most of their other shareholders are institutional funds or hedge funds..., which are going to prefer a cash offer to a share offer.
Comcast's offer will include the debt based on their Sky offer. Their Sky offer was $31 billion in cash plus $11 billion assumption of debt. Their offer for Fox's assets will be around $60-62 billion in cash plus $14 billion in debt assumption. If you ignore the overlap from Fox's 39% of Sky, that comes out to an overall offer of $80 billion in cash plus $25 billion assumption of debt for both Fox's assets and the other 61% of Sky.
Disney offered $52 billion in stock plus $14 billion in debt assumption for Fox's assets.
The problem I can see for Disney is that adding cash to a stock offer tends to reduce one's own share price due to investor concern about overpaying for the assets; that means Disney may have to add more than $5-7 billion in cash to "out-offer" Comcast.
Of course, all of this only matters if the judge allows AT&T-TimeWarner to pass. We have to wait until that happens to see where this all goes.
happycamperuni
Active Member
At this point, even Disney's offer is already an overpay. Anything Comcast adds to that will just raise the price to the stretching point.
If Fox's assets and Sky are being valued compared to Comcast and Disney assets, Fox's assets are probably worth at most $40 billion. Sky is probably worth at most $25 billion.
Of course, the problem is scarcity. Among major media assets, Fox is #4 to Disney, Comcast, and TimeWarner. After Fox is CBS/Viacom and Sony, but neither of their specific assets are for sale and neither really compares to Fox's assets + Sky.
So you end up overpaying either way, question is whether it's worth it in the long-run to overpay now for those assets.
Disney already has enough content to launch a pretty strong Disneyflix and ESPN+ offering. Comcast does not with just NBCU's broadcast/cable/film content, so Comcast probably has to try to overpay for Fox's assets.
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Comcast also has to pay 1.5 billion fee to Disney on top of what Fox Shareholders will get. Plus this time they will have to agree to pay a breakup fee. Refusing to include that with their original offer is why Fox went with Disney. However, Comcast has to seriously consider the risks. The 1.5 billion will have to be paid upfront with no possible refund plus 2.5 billion if Comcast cant complete the deal. Will the Government let Comcast on 2 studios? Same issue as Disney but Comcast is also the largest Cable company and broadband provider. Then there is Europe and their very active antitrust activity. They have to approve it too. Finally, will the Comcast Board approve the risk of 4 billion dollars for nothing if they are prevented from merging??? 4 billion is your 3rd gate. The Fox Board can not accept any offer from Comcast with out paying Disney and they can't take the risk of the merger being denied by the Feds without compensation.
Stripes
Premium Member
Are you sure about that? You may know more than I do. I just can't find anything that says that after searching Google 10 times.
I would not assume that to be the case considering an all-stock offer is non-taxable. Comcast's offer would be taxed at around 15% (or more), resulting in a loss of $9 billion in shareholder value assuming a $60 billion cash offer.
From Reuters:"Last month’s regulatory filing also showed that Fox viewed Disney’s stock as more valuable than Comcast’s, based on historic prices, and felt that a deal between Disney and Fox would generate greater long-term value." Clearly, Fox's board is more than happy to accept Disney stock as acceptable currency.
With that in mind plus the $1.5 billion break-up fee, I don't see the meaningful premium over Disney's offer.
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righttrack
Well-Known Member
They should be used to burn and heat homes, never to be seen again.
happycamperuni
Active Member
https://www.marketwatch.com/story/comcast-pursues-sky-and-bigger-move-for-fox-assets-2018-04-25
"Mr. Murdoch and his family have a 39% voting interest in Fox. Their economic interest, which is what would count in a shareholder vote on the Disney-Fox merger, is roughly 17%." It's because all classes of shares get to vote on a merger or significant asset sale like this.
As far as taxes go, it's complicated because the Disney-Fox merger isn't actually tax-free. It's tax-deferred in a sense for the Fox shareholders, but they're going to take on some debt to cover the immediate liabilities for taxes.
Also, the breakup fee only applies if the Fox board accepts a counter-offer from Comcast, then they'd borrow $1.5 billion to pay Disney and send that $1.5 billion in debt over to Comcast along with the assets. So that $1.5 billion is basically just extra debt for a different buyer in a broad sense.
Basically, the best way to think about it is that the Disney-Fox merger gives $30 worth of Disney stock and $8 worth of Fox stock to Fox shareholders.
If Comcast can make an offer to gives $36 in cash and $10 worth of Fox stock to Fox shareholders, they'll prefer that even with the immediate capital gains tax on that $36. (The reason the Fox stock is worth more is because it doesn't have the tax liabilities that the Disney-Fox merger creates for the remaining Fox company).
raven
Well-Known Member
Hatbox Ghostbuster
Well-Known Member
Ugh. More rich white men getting in a p***ing contest about who is going to buy who.
This is what the Disney Company has turned into.
This is what the Disney Company has turned into.
Stripes
Premium Member
Well, in a perfect example of journalism failure, there is a completely contradictory statement here: “It's unclear whether such a bid would be welcome or hostile and how the Murdochs feel about it," Steven Cahall, an analyst with RBC Capital Markets said, according to Hollywood Reporter. "Recall that the Murdoch Family Trust owns about 39 percent of the voting class B shares, so their view is nearly, but not quite, all that matters."
https://www.bizjournals.com/bizwome...te-on-potential-new-comcast-bid.html?page=all
I honestly don't know which to trust. Do you know of a similar acquisition with a dual-class stock structure, and how that went down? That would definitely clear it up.
Of course, you are correct. But it seems the Murdochs much prefer Disney stock over cash. That is what they've indicated, and it has been their history.
Don't forget it's also $1.5 billion that will help Disney make a higher offer. Besides, if the Comcast deal doesn't go ahead for some reason, especially if Fox turn back to a higher Disney offer, then they've just tacked on more debt for nothing. It's very risky, especially if for some reason Fox finds that they want to pull out a Comcast deal because regulators lower the value of the acquisition.
Also, if Comcast goes ahead with their Fox bid, they'd become the largest corporate borrower in America. With a less than appealing credit rating, which would substantially limit their ability to purchase assets in their core business: cable.
https://www.bloomberg.com/news/arti...ld-create-huge-behemoth-with-170-billion-debt
happycamperuni
Active Member
Found the best source:
https://www.sec.gov/Archives/edgar/data/1308161/000119312513338522/d578800dex31.htm
Subject to applicable law and the voting rights of any outstanding series of Preferred Stock and Series Common Stock, each of the shares of Class A Common Stock shall entitle the record holders thereof, voting together with the holders of Class B Common Stock as a single class, to one (1) vote per share only in the following circumstances and not otherwise:
(B) on a proposal to sell, lease or exchange all or substantially all of the property and assets of the Corporation;
As far as the $1.5 billion goes, it only comes into effect if Disney allows Fox to sign on a sale to Comcast, that money doesn't exist otherwise.
As far as debt goes, both Comcast and Disney are low debt/leverage companies.
Comcast probably can take on a $170 billion debt in the short run if they show a path towards paying that down to the <$100 billion range over a 15 year timeframe. It's doable for a corporation that will likely be running over $30 billion a year in operating income after the merger.