What Would A Potential Comcast-Fox Combination Look Like?
In the wake of recent developments, Disney has boosted its bid for the studio and cable network assets of Fox to $71.3 billion in cash and stock ($38 per share in cash and stock). This offer is close to 10% ahead of what Comcast had offered last week. Although Fox’s board has accepted Disney’s offer, the deal is still subject to shareholder approval. In this article, we take a look at how a combined Comcast and Fox entity could shape up – if Comcast comes back with a superior bid to Disney.
Total Assets of Fox-CMCSA Entity
Comcast is the largest U.S. cable operator and broadband provider. It also owns Universal Studios and Universal Parks and Resorts. If a Comcast-Fox deal were to happen, Comcast would also own 20th Century Fox studios, FX Networks, and National Geographic’s magazine and TV network. In addition, Fox’s international TV networks – Star India (Indian media company), Fox Network Group International (operating across Europe, Asia, Africa), European network Sky, and Endemol Shine Group – would also add to the company’s portfolio. To add to that, Comcast would also have a majority stake in Hulu after the potential Fox acquisition, as Disney, Comcast, and Fox each control 30% of the streaming video service, while Time Warner has the other 10%.
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The Sky advantage
Comcast recently formalized its $31-billion bid to buy 61% of European satellite-TV provider Sky, which Fox has been trying to buy for nearly 17 months. Fox already owns the remaining 39% of Sky. Comcast sees Sky as a vital platform for furthering its content and OTT strategies in international growth markets, as it is witnessing cable subscription declines in the domestic market due to cord-cutting.
Can Comcast Fund This Deal?
Comcast has just $7 billion in cash. This means that it would likely have to issue additional debt for the takeover of Sky and most of the $65 billion cash that it bid for Fox. In addition, it would also take on Fox’s debt. In fact, Comcast’s spending spree could nearly triple its total debt to $170 billion, according to Moody’s. This would make Comcast the world’s second-most indebted company by dollars (excluding banks), behind the newly combined AT&T and Time Warner. It should be noted that Comcast is currently rated A3 by Moody’s Investors Service, four steps above speculative grade. However, the rating could be downgraded on the completion of a potential Fox acquisition. Further, now that Disney has raised its bid, Comcast will have to match or exceed Disney’s offer to stay in the running. Comcast would likely have a tough time repaying its debt while continuing to do share repurchases, pay dividends and carry on other M&A activities.
The Need of the Hour
The reality of the situation is that the media industry is seeing secular pressure, primarily due to the growing cord-cutting phenomenon. This, in turn, is affecting cable and broadcasting businesses. Since many big media players are facing slowdowns from these industry dynamics, they are considering M&A and other deals in order to improve their positioning. The companies are also willing to sacrifice their credit ratings in exchange for M&A opportunities for further growth.
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