The bidding war over 21st Century Fox reached a new peak Wednesday as Walt Disney announced it was upping its offer to $71.3 billion, days after Comcast made a competing offer of $65 billion and hours before the Fox board met to discuss the bid.
“When I saw the news the first word uttered out of my mouth was ‘wow,’” said Andrew Hulsh, a partner in the law firm Pepper Hamilton who specializes in mergers and acquisitions. “This is Disney throwing down the gauntlet with a superior offer. They’re saying we really want these assets and the buck stops here.”
In December, Disney offered $52.4 billion in stock for the bulk of Fox assets, before Comcast swooped in with its all-cash offer last week.
On Wednesday, Disney said its offer would be for a mix of cash and stock and would allow shareholders to choose which they preferred — up to 50 percent could be in cash. The company said it would pay $35.7 billion in cash and issue roughly 343 million new shares to 21st Century Fox shareholders. Disney will also assume about $13.8 billion of net debt of 21st Century Fox.
The deal puts the ball back in Comcast’s court on whether they would make a new offer or walk away and let Disney grab the Fox ring. But many analysts say that Disney’s move will be tough for Comcast to surpass.
Of greatest concern to analysts about a Comcast retort involved the debt. Comcast’s ability to finance an acquisition was already in question before Wednesday; having to up its offer at least 10 percent to match Disney could push it further to the brink.
“The debt they’d need to take on to make a deal would plunge them into such a massive hole that I’m not sure they could do it,” said Hugh Tallents, an M&A expert at management consultancy cg42. Disney is widely believed to have the stronger balance sheet, while Comcast would require more outside bank support to make a deal.
Despite the challenges, reports of a potential Comcast counter-offer trickled in Wednesday afternoon at a premium of nearly 9 percent over the Disney bid, in what would essentially be a last-ditch bid to stop the company of Marvel and Pixar from landing the Fox assets. A Comcast spokeswoman would not comment on the reports.
If Disney’s bid succeeds, it would boost the company’s worldwide entertainment dominance by providing it with Fox film and TV studios, as well as cable networks such as FX, international assets including Star India and an additional 30 percent stake in Hulu.
Comcast, which already owns NBC Universal, is hoping to use the assets to gain an edge over Disney, particularly internationally, where it is weak. Scale is considered key as digital companies with wide distribution continue to ramp up their content efforts. Those companies include Apple and Netflix.
The combination of cash and stock in Disney’s offer helps neutralizes Comcast’s previous advantage with Fox shareholders who prefer cash.
Equally important, analysts say, it gives Fox Executive Chairman Rupert Murdoch, who prefers the Disney bid, a key weapon in persuading shareholders to accept it.
“We are extremely proud of the businesses we have built at 21st Century Fox, and firmly believe that this combination with Disney will unlock even more value for shareholders as the new Disney continues to set the pace at a dynamic time for our industry,” Murdoch said in a statement Wednesday morning. “We remain convinced that the combination of 21CF’s iconic assets, brands and franchises with Disney’s will create one of the greatest, most innovative companies in the world.”
The news came ahead of a regularly scheduled Fox board meeting Wednesday at which Murdoch and the company’s directors were expected to discuss the competing offers. A shareholder meeting was also scheduled for July 10 to discuss the potential transaction, but it has been postponed indefinitely in the wake of the bidding war, Fox representatives said.
Rupert Murdoch and his family control about 17 percent of voting shares — an amount well below what’s needed to make the decision on their own.
The market was relatively cool to the news from the perspective of Disney and Comcast. Disney’s stock closed up nearly 1 percent to $107.15 and Comcast’s ended the day up nearly 2 percent to $33.39. But investors loved the implications for Fox as the bidding war intensifies. The company’s stock finished Wednesday up 7.54 percent or at $48.08.
The high-stakes wrangling over 21st Century Fox comes after AT&T’s legal victory over the government to buy Time Warner for $85 billion, and analysts say it is likely such massive mergers will continue in coming months. Both Comcast and Disney assure the deal will receive regulatory approval this month.
“The acquisition of 21st Century Fox will bring significant financial value to the shareholders of both companies, and after six months of integration planning we’re even more enthusiastic and confident in the strategic fit of the assets and the talent at Fox,” Disney’s chairman and chief executive, Robert A. Iger, said in a statement.
While close observers said it’s not the end of the road, they wonder if the firms were nearing that point.
“Both Disney and Comcast want these assets very badly,” said Trip Miller of the Memphis-based investment firm Gullane Capital, which is a long-term investor in Disney. “I think we’re getting later in the chess match. It may not be the end, but Disney has put Comcast in a position where it’s going to have to make a very big offer even for the chance to stay in it.”