With Comcast swooping in with a rival $65 billion bid for Fox, Disney obviously has to respond. But having to raise its initial $52.4 billion all-stock bid could be a good thing for its shareholders.
MoffettNathanson analyst Michael Nathanson sat down with CNBC to discuss the new bid from Comcast and said that Disney has to at least match it. But he said Disney having to throw cash toward the raised bid could end up being positive even if it means expanding debt.
“If Disney could reduce the number of shares they’re giving Fox and add more debt, it’s actually better for shareholders,” said Nathanson. “An all-stock deal, the first deal, was dilutive. If you add more debt and lower the stock component, it’s actually better for Disney’s stockholders.”
Under the current terms of the Disney-Fox deal, shareholders of 21st Century Fox will receive 0.2745 Disney shares for each 21st Century Fox share they hold.
In addition to its $52.4 billion all-stock offer, Disney will assume $13.7 billion of net debt of 21st Century Fox, lifting the total transaction cost to approximately $66 billion.
Comcast’s bid for Fox is priced at $35 per share and represents a 20% premium on Disney’s offer. Comcast has also bid $29 billion for European operator Sky, outpacing Fox’s $24.7 billion bid for the 61% of Sky it doesn’t already own.
Nathanson said Disney needs to convince Fox to match Comcast’s bid for Sky. When asked what price Comcast or Disney shareholders would be upset to see exceeded in bidding on Fox, he said that there is more room for both Comcast and Disney to raise their bids for Fox.
“Both companies can go a long way before I think you hit that point,” said Nathanson. “The bid now is $35 [per share.] $40 from either Comcast or Disney really doesn’t tip the investors into a mood where they say ‘this is too much.’”