- REUTERS / Gus Ruelas
- It’s starting to look more likely Comcast will come back to the negotiating table over 21st Century Fox assets,RBC Capital Markets analyst Steven Cahall told Business Insider.
- Disney and Comcast are willing to pay a steep premium for 21st Century Fox’s “hugely strategic” assets.
- Comcast has the balance sheet strength to raise Disney on its latest bid.
- But one strategy from Disney could allow it to ultimately win out.
- Watch Disney, Comcast, and 21st Century Fox trade in real time here.
Wall Street is warming up to the idea that the bidding war for 21st Century Fox assets isn’t over just yet.
“I do think that it’s likely,” RBC Capital Markets analyst Steven Cahall told Business Insider, referring to the chances Comcast makes another bid for 21st Century Fox assets.
In late June, Disney agreed to a deal that values 21st Century Fox’s assets, excluding the Fox News and Fox Business channels, at $71.3 billion. That agreement outdid Comcast’s $65 billion offer, which itself bested Disney’s initial December bid of $52 billion.
But after Disney and 21st Century Fox agreed to the latest offer, Jefferies analyst John Janedis predicted that “given the strategic importance of the 21st Century Fox assets, we expect Comcast will come back with a higher offer.” He predicted one that would value the 21st Century Fox assets at $80 billion.
And as of Thursday morning, Janedis isn’t alone. In a note sent out to clients, Cahall predicted Comcast could indeed make another bid. “Comcast will similarly approach Fox focused on post-RSN leverage so we wouldn’t be surprised to see Disney and Comcast bidding into the $40s,” he wrote. Any buyer of the assets would have to divest the regional sports network.
The price of 21st Century Fox’s assets is being driven up due to their scarcity, according to Cahall. “There is a certainly scarcity premium here that defies the way we normally look at multiples,” he said. “These are hugely strategic assets that cannot be necessarily replicated through organic investment.”
Comcast badly wants to win the sweepstakes, and it has the might on its balance sheet to raise Disney’s bid. Both bidders would finance the acquisition with a large amount of debt, but “Comcast has the bigger balance sheet so it has more debt capacity and can pay a higher price,” according to Cahall.
Comcast has roughly $6 billion in cash, compared to Disney’s $4 billion. “If it has to be an all cash bid, it would suggest that Comcast is in a stronger position,” he added.
Whatever the price, Disney is going to offer half cash and half stock, which means that it can likely match any Comcast bid.
“If the stock price starts going down, it shows that investors are worried about the company overpaying,” Cahall told Business Insider in regards to Disney’s stock price.