It could get costly, very costly. 

With Action Alerts PLUS holding Comcast Corp. (CMCSA) offering £22 billion ($30 billion) to acquire Sky plc and reportedly lining up financing for a bid to acquire much of Twenty-First Century Fox Inc. (FOXA)  for $60 billion or so, shareholders for the Philadelphia media group could be contemplating an M&A bill approaching $100 billion if bidding wars ensue. 

The deals would bring Comcast premium media assets and global reach, but would draw questions about its use of capital. Comcast and Disney (DIS) may feel that they have no option but to pursue Fox's film and television studios, holdings in European and Indian pay-TV businesses, and other assets. 

"In the wake of Comcast's ~$30bn bid for Sky, investors have focused on the company's leverage, questioning the strategy to lever up for Sky rather than repurchase shares at a lower multiple," Scott Goldman of Jefferies LLC wrote in a Tuesday note. Buying Fox and Sky with cash could push Comcast's net leverage to about 4.5 times Ebitda, Goodman noted, "intensifying" debate about the cable operator's balance sheet.

With current net leverage of 2.2 times Ebitda, Comcast returned $2.2 billion to shareholders in the first quarter of 2018. The company paid $738 million in dividends and repurchased $1.5 billion worth of its stock. At an annualized rate of $6 billion in buybacks, Comcast noted during its late April earnings call, the company is ahead of its minimum target of $5 billion in repurchases this year.

Comcast's dividend yield of nearly 2.5% is well below AT&T Inc.'s (T) 6.3% and Verizon Communications Inc.'s (VZ) 5%. However, Comcast is more generous than Charter Communications Inc. (CHTR) and Dish Network Corp. (DISH) , which do not pay dividends on their common stock.

Disney CEO Bob Iger feeling confident.
Disney CEO Bob Iger feeling confident.

To Comcast and Disney, Goldman wrote, Fox likely may be "the last remaining transformational deal in media." It may be difficult to resist pursuing pieces of Rupert Murdoch's empire, even at great expense. 

Disney Chairman and CEO Bob Eiger did not tip the company's intentions during a Tuesday earnings call. Handicapping Disney's moves may be difficult, Richard Greenfield BTIG LLC noted in a Tuesday report, because the company has never been in an "all-out bidding war for a major asset."

Disney is launching direct-to-consumer streaming video platforms this year and next, and clearly covets the extra content that Fox would bring.  "[I]f you believe Disney feels like it has to have more content to launch a direct-to-consumer service DTC and needs more DTC assets such as Hulu, Sky and [Fox's Indian streaming service] Hotstar, then Disney has no choice but to significantly sweeten their offer for Fox," Greenfield wrote.

If Disney walks away without Fox, the analyst suggested, it could look at a gaming company such as Activision Blizzard Inc. (ATVI) or Electronic Arts Inc. (EA) , or a digital media company with a mobile presence such as Twitter Inc. (TWTR) , Spotify Technology SA (SPOT)  or Snap Inc. (SNAP) .

While the Fox assets may be the last sizable package of premier media assets available, Gregory Williams of Cowen & Co noted that levering up to buy the businesses could limit Comcast's ability to pursue opportunities in wireless or other markets. 

T-Mobile US Inc. (TMUS) is buying Sprint Corp. (S) for $59 billion. If the deal falters, T-Mobile could be in play. But Comcast's debt load could prohibit it from pursuing the company. 

In an alternate scenario, however, Williams suggested Comcast could set itself up for a larger wireless deal by acquiring the Fox and Sky assets. After bulking up on acquisitions that increase its Ebitda and ability to finance a large transaction, the analyst wrote, Comcast could "eventually leapfrog and acquire a T-Mobile/Sprint" after the telecoms merge.

"While we like this rationale, it is admittedly hypothetical with unknowns and execution risk, and beyond the time horizon for most investors," he wrote.

Of course, adding a U.S. wireless carrier would require more leverage and further intensify the balance sheet debate.

Comcast declined to comment on a bid for Fox. 

Editor's note: This article was originally published by The Deal, a sister publication of TheStreet that offers sophisticated insight and analysis on all types of deals, from inception to integration. Click here for a free trial.

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