With Comcast Corp. (CMCSA) and Walt Disney Co. (DIS) reportedly circling, Twenty-First Century Fox Inc.'s (FOXA) valuation keep rising higher -- even after the stock has already climbed for about a month on deal speculation.
Sum-of-the-parts valuations for Fox based on reported details put the entertainment company's worth at around $40 per share, a 18% premium to Fox's $33.77 closing price on Thursday. Vital questions include how much debt the buyer would assume, and whether regulatory risk could influence the bidding prices.
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Beyond its film portfolio and its entertainment networks in the U.S., Fox has global distribution networks that would make Disney or Comcast a global power. Fox owns 39% of European satellite TV network Sky LLC and Star India Private Ltd. in India.
"Disney, which has one of the few global media brands largely because of Mickey Mouse and its theme parks, could probably make the most of that additional distribution," Moody's Investors Service analyst Neil Begley said. "When you start thinking about Star Wars and Marvel on top of that, they could benefit [more] than Comcast could."
For its part, Comcast has invested heavily to improve its set-top box and user interface for its pay-TV service. Begley noted that the company could reap savings by acquiring Sky and Star.
According to CNBC, Disney offered to pay $60 billion or so for Fox's film studios, the Fox entertainment networks, Nat Geo, regional sports networks, Star satellite TV network, Sky and Hulu.
B. Riley FBR analyst Barton Crocket valued the businesses at $61.5 billion in a Thursday note. The analyst suggested that Disney would pay nearly $48.8 billion in equity and $12.8 billion in assumed debt, in a Thursday report, and raised his price target on Fox $2 per share to $38.43.
Among Fox's rich portfolio of assets, Crocket values the sports networks at $17.4 billion, the film studios at $13.6 billion and the Star network in India at $11.5 billion. "Disney is under-exposed internationally, and India, as the world's second-most populous country, is an egregious area of under-exposure," the analyst wrote. Fox's stake in Sky is worth about $8.8 billion, and Crocket values Fox's 30% stake in Hulu LLC at $1.9 billion.
With multiple suitors for Fox's entertainment and other assets, Wells Fargo Securities LLC analyst Marci Ryvicker values Fox at $44 per share before taxes -- or $40 after taxes. She attributes $32 per share to assets Disney would buy and $12 per share to the leftover Fox News, Fox Sports, broadcasting and other businesses.
In Ryvicker's model, Disney would take on $11.5 billion of Fox's debt , leaving more than $8 billion on the books of the post-breakup Fox. Including the debt, she values the new Fox at $26 billion.
Fox shareholders would own 31% of Disney, she estimated, with the Murdochs holding a 5% stake.
Disney has a regulatory advantage over Comcast, however. The Department of Justice sued to block AT&T Inc.'s (T) purchase of Time Warner Inc. (TWX), arguing that AT&T's content distribution network could allow it to charge more for Time Warner's movies and TV programs. Comcast, with its vast cable systems, would presumably face similar charges if it tried to acquire Fox's entertainment assets.
As a result, Comcast might have to bid more than Disney to account for the risk, John Janedis of Jefferies suggested in a report. The analyst values the assets for sale at $66 billion, including $12 billion in debt, and suggested Disney is more likely to prevail because of the regulatory concerns. Janedis has a $41 sum-of-the-parts valuation for Fox.
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