Comcast Made a Higher Offer, Why Did Fox Pick Disney?

by Jamison Ashley
CNBC, citing “unnamed sources”, has reported that Comcast made Fox a higher offer than Disney to buy Twenty-First Century Fox who reportedly offered $52.4 billion in stock, but Fox still opted to go with Disney. Does that make sense to anyone? Well, it does to Billy Duberstein writing for He explores the answers to that question for investors:

While Disney and Comcast are each large, profitable companies, neither exactly had $52.4 billion sitting in their couch cushions, so the buyout was always going to be an all-stock deal. That means Fox shareholders wouldn’t receive cash, but rather Disney or Comcast shares, along with shares of “new” Fox containing Fox Broadcasting network and stations, Fox News Channel, Fox Business Network, FS1, FS2, and Big Ten Network.

Prior to the deal, Disney and Comcast were trading at nearly identical valuations — roughly 19 times earnings. I recently wrote why I thought Disney was an attractive buy, and apparently Rupert, Lachlan, and James Murdoch agree since they chose a deal that will give Fox shareholders 0.2745 Disney shares for each 21st Century Fox share they hold. In addition, I think the Murdochs believe Fox’s assets would create more value under Disney than they could under Comcast.

Duberstein explains why, outlining Comcast’s strong content assets, including NBC Universal, which it acquired in 2011, and Dreamworks Animation, which it acquired in 2016. Comcast also owns several theme parks from Universal Studios in Orlando and in Hollywood and their majority interest in Universal Japan which is growing at a rate similar to Disney. And what Comcast has that Disney doesn’t have is a profitable high-speed internet & video distribution operation, with includes almost 30 subscribers. Disney doesn’t have that, yet.

While Disney doesn’t have the distribution Comcast has, it’s currently building a direct-to-consumer offering via its BAMtech acquisition, as well as its soon-to-be majority stake in Hulu. Therefore, the Murdochs likely believe content will be the differentiator going forward.

On that front, Disney is not only home to the 95-year-old Disney brand, but also Marvel, Pixar, and Star Wars. And while Comcast’s Universal Studios did manage a hit with The Secret Life of Pets in 2016, that was Universal’s only film to crack the top 10 last year. Disney, by contrast, had eight of the top 13 films of 2016, including four out of the top five. That is, needless to say, total box office domination.

That popularity has translated into outperformance at Disney’s parks & resorts segment, which, despite being four times bigger than Universal’s, slightly outgrew the Universal Parks at 8%, along with even better 14% profit growth.

The Murdochs likely believe Fox’s big movie brands — Avatar, Deadpool, and X-Men — would generate more value under Disney’s leadership than under Universal’s.

A deal with Fox will give Disney more shows and movies for television and online distribution at a time when companies such as and Netflix are spending billions to bulk up on programming. And it will also expand Disney’s international reach and diversify its revenue as U.S. cable subscribers decline. While the future looks very bright for Disney with this deal, their future is still in the hands of the U.S. Congress as top democrats are calling for an investigation into the deal in order to determine if The Walt Disney Company will be given too much influence over media.

We’ll be watching this deal very closely.