Analyst: 'Comcast should force Disney to pay every penny they can to win'

It’s crunch time for Comcast over Fox.

On Thursday, the Walt Disney Co. and 21st Century Fox announced that they would hold shareholder meetings in New York on July 27 to approve Disney’s latest $71 billion offer for Fox’s Hollywood studios, cable channels, content library, international channels, and parts of the European Sky satellite-television business.

This came only days after the Justice Department’s antitrust regulators disclosed a lightning-fast approval for a Disney-Fox deal as long as Disney sells off Fox’s 22 regional sports networks.

Comcast would have to make a competing bid before July 27 so Fox shareholders can consider it.

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“We’re still in the middle of the game,” Eric Schiffer, chairman of the private equity firm Patriarch Organization in Los Angeles, said on Friday morning, echoing the belief that Comcast will not hang its head and walk away.

“It’s not over.”

Comcast is reportedly negotiating with private equity firms as partners for a new Fox bid that could top $80 billion, with the outside firms defraying some of the massive borrowing that Comcast would take on to close a Fox deal.

“Comcast will dig in because they see this as a historic moment to strike,” Schiffer said. But Disney “won’t back away. It will fight this to the end. And at some point this will be difficult for Comcast financially.”

The ultimate price could go to $90 billion, observers believe.

Disney, led by CEO Bob Iger, would like the Fox movie- and TV-production studios to fill its pipeline of entertainment for direct-to-consumer streaming services to compete with Netflix and Amazon. Comcast, run by CEO Brian Roberts, likes the Fox entertainment studios but has said that he would like to take its business global. Sky and Fox’s international channels that reach hundreds of millions of TV viewers would enable Comcast/NBCUniversal to do that.

Fox founder Rupert Murdoch, 87, favors Disney, and this has complicated deal-making for Comcast. Murdoch chose Disney late last year as the buyer for Fox assets despite Comcast’s higher offer and he has renegotiated the Disney deal recently to make it easier for Disney to up its bid to $71 billion in cash and stock, beating out Comcast’s $65 billion all-cash offer.

Murdoch also controls the conservative-leaning Trump-aligned Fox News Channel. Many see this relationship as easing regulatory approval for Disney-Fox while complicating approvals for Comcast-Fox. Comcast owns the liberal-leaning MSNBC, and Trump has lumped NBC News into those networks he considers “fake news.”  Murdoch is to maintain ownership and control of Fox News and the Fox broadcast television network.

Michael Nathanson, of the MoffettNathanson LLC research firm, said the Justice Department approval of the Disney-Fox deal was much quicker than expected. “It seems to us,” he said, “that the pressure is now back on Comcast to come in with a more significant bid … to help sway the 21st Century Fox board to reject the bird in the hand,” — the Disney deal.

New Street Research analyst Jonathan Chaplin sees Disney-Fox-Comcast playing out in multiple scenarios and Disney winning.

But he added that “just because Disney will probably win, it doesn’t follow that Comcast should walk away. Comcast should force Disney to pay every penny they can to win. The more Disney uses their available resources to win Fox, the less they have left to compete for Sky. Remember, there are two contests here. Comcast doesn’t have to lose both. If Comcast could pick just one asset among all the assets on the table, it would probably be Sky.”

Sky is the U.K.-based television and internet service with 23 million subscribers in several European nations. Fox now owns 39 percent of Sky and is seeking to gain full control, with the intent to include it in the package of assets for Disney.

Attempting to thwart Fox there, Comcast has made an unsolicited $31 billion offer for Sky. Moody’s Investors Service said on Friday the best option for bondholders in Disney and Comcast would be for Disney to acquire the Fox entertainment assets for $71 billion and Comcast to acquire Sky for $31 billion.

Moody’s analyst Neil Begley said Friday both players could win. He sees Disney-Fox and Comcast-Sky combinations as good fits that won’t saddle either with “a remarkable debt load.”