Disney/FOX Acquisition Thread

[zg44]

wow. not even close. That's a pretty high bid for what it is.

It is, I expected Comcast to bid 16.50-16.75 as a winning bid; they went over that even. Makes it clear how badly they wanted into Europe content distribution.

 

[JungleSkip]

Ugh

 

[zg44]

Okay ran some numbers quickly:

Comcast long term debt outstanding: $62 billion


Comcast's offer values Sky at $38.8 billion (29.7 billion pounds at 17.28 per share). Comcast will probably obtain 55+% of the outstanding shares with an offer that big, so you're looking at $21.3 billion in additional debt from the Sky shares.

Sky has $10.3 billion in debt outstanding (which Comcast would have to consolidate as a majority owned subsidiary).


So basically, Comcast will be adding an extra $31.6 billion in debt to the balance sheet. In some ways, we should probably be glad that Comcast didn't go through on the Fox bid.


Comcast new debt total: $93.6 billion

(All of this assumes that Disney keeps their 39% of Sky and doesn't tender it to Comcast at 17.28 pounds per share, which they may for the extra $15 billion in cash...)

 

[Mad Dog]

Okay ran some numbers quickly:

Comcast long term debt outstanding: $62 billion


Comcast's offer values Sky at $38.8 billion (29.7 billion pounds at 17.28 per share). Comcast will probably obtain 55+% of the outstanding shares with an offer that big, so you're looking at $21.3 billion in additional debt from the Sky shares.

Sky has $10.3 billion in debt outstanding (which Comcast would have to consolidate as a majority owned subsidiary).


So basically, Comcast will be adding an extra $31.6 billion in debt to the balance sheet. In some ways, we should probably be glad that Comcast didn't go through on the Fox bid.


Comcast new debt total: $93.6 billion

(All of this assumes that Disney keeps their 39% of Sky and doesn't tender it to Comcast at 17.28 pounds per share, which they may for the extra $15 billion in cash...)

Done & Done.....Thanks for the updates & financial ramifications breakdown....The cost to play in the European game, a bit high, but it is what it is.

 

[quinnmac000]

I don't think its going to hurt the parks as much as people think it will. It essentially is the same amount (if you don't include disney's 39%) as it cost Comcast to buy all of NBCUniversal. Even then Comcast went and bought more stuff and still improved the parks.

Mainly right now is how Comcast plans to re-organization and fold Sky into the family and based off that will determine how much good or bad will happen to the parks.

 

[JoeCamel]

Isn't Sky's new frontier India? That would be a huge market to expand in

 

[zg44]

Keep an eye on this, we'll likely hear about trading around Disney's 39% of Sky and Comcast's 30% of Hulu over the next couple of months...

I can't see any negative impact to the parks from Comcast purchasing Sky; the negative impacts would have been present if Comcast had been serious about pushing for a Fox purchase with all-cash in the $70-90 billion range.

That kind of move would have pushed Comcast's overall debts to $150+ billion; that's the point at which they would see serious changes to overall cash flows; with Sky the situation is much more easily managed with Comcast keeping their overall debt below $100 billion in the short run.

Just think of it as Comcast will be putting some of their extra profits from tax cuts towards paying off debt/interest on this Sky purchase; that's the only cash flow issue we'll see (and that won't impact the parks).

 

[zg44]

Isn't Sky's new frontier India? That would be a huge market to expand in

Sky has a ton of European growth left ahead of it, so I doubt they'll be going outside Europe any time soon:

Currently:
Sky operates in 5 primary countries at the moment: UK, Ireland, Germany, Austria, and Italy. It has around 22-23 million subscribers in those countries for Pay TV (satellite mainly) and OTT (Sky Now TV) and some broadband subscribers.

For expansion:
They recently started OTT in Spain, and that's the path they'll take in expanding to other European countries. I can easily see them trying to go OTT in France and other European markets now that they'll also be able to offer Comcast's channels.

Combining Sky's channels and NBCU channels should be fairly compelling in European countries that they don't yet operate in...; this is why both Disney and Comcast wanted Sky pretty badly; it is the best way to target European households given their current content deals.

 

[quinnmac000]

I think the biggest thing that should be highlighted is Comcast's European based companies [Illumination Entertainment (France), NBCUniversal International Studios (UK), Working Title Films(UK), Carnival Films(UK), Euronews (Germany)] can now be leveraged at a much higher rate than previously known. Doing so will increase the level of impact and brand awareness in the region as well as give them another platform other than Netflix to distribute their properties easily.

They will lose a cost of licensing deals but in the end, they gain direct revenue and better number/data tracking.

The last biggest win is the Sky joint ventures and co-production pacts with Viacom and HBO.

 

[Nick]

Disney won’t simply tender for the extra cash... they will want Comcast’s 30% of Hulu PLUS cash considerations if Disney is giving up the 39%.

 

[Moose84]

Very happy with this acquisition for Comcast. Sky has a more direct and continuous revenue stream than Fox does or ever could. In the long term I see the acquisition of sky holding a much greater value than fox ever would.

Fox has some of my favorite IPs of all time like Die Hard, Aliens, Predator, Speed(yes I even found some enjoyment in the sequel with as bad as it was), AHS(in spite of its political side is still arguably my favorite show right now), etc. but they were unable to manage to very different sides of business and their entertainment division was falling while their news and sports division is thriving. The Murdoch’s won and Disney lost in that angle.

Sky though is a monster in itself and leading the way in a massive market. Comcast was smart to capture this prize even with price more than we’d like. They have a built in clientele that is already paying for services with growth ongoing. Also they have exclusive licensing deals(with Disney content don’t forget) that is valuable,as well as soccer which is huge in Europe, sorry the world people. They also have investments in exclusive shows and movies to their platform. They have pull true pull in the European media market which gives Comcast leverage and ability to maneuver now in a changing world.

Comcast now controls great holds in both media services be it content(cable, satellite, streaming) and the broadband(connection to streaming and media) in two of the largest markets in the world. Disney has media but Comcast controls the major way to get media. Roberts is probably laughing while Iger sulking. I like Disney things too but this is a gut check moment for the Disney brass and am happy for Comcast.

 

[zg44]

Disney won’t simply tender for the extra cash... they will want Comcast’s 30% of Hulu PLUS cash considerations if Disney is giving up the 39%.

Agreed, but in some sense that evens up the negotiations because both sides have something the other side wants and once the tender is closed that 17.28 pounds per share is no longer operable.

Comcast is overpaying for 51+% of Sky, but they don't necessarily have to offer Disney that same price for Disney's 39%. At 17.28 pounds per share, Disney's 39% is worth $15 billion according to that price.

Hulu's been undervalued by the various private allocations that Disney/Comcast/Fox have posted ($2.4 billion for 30% was their latest valuation, which seems like a big undervaluation).

Netflix is valued by public markets at $160 billion with 130 million total subscribers (only half in the US, which are more valuable than foreign subs, but the market also includes Netflix's future valuation of obtaining 200-300 million subscribers with international growth).

Hulu is valued by the owners at a book value of $8 billion with 20 million subscribers in the US only. If Hulu was public, I think it'd have a valuation around at least $20 billion due to 1) having higher value subscribers than Netflix, but 2) lower growth potential than Netflix since no big international growth available yet.

That means that Comcast can probably negotiate to a point where they get Disney's 39% of Sky for $8 billion in cash and the 30% Hulu stake.

 

[GadgetGuru]

I think we’re ignoring the big question: will the EU allow Comcast to purchase Disney’s 39%?

The EU has been doing more antitrust crackdowns than any other major body. I find it really hard to believe that they would allow Comcast to purchase even more of Sky.

 

[quinnmac000]

I think we’re ignoring the big question: will the EU allow Comcast to purchase Disney’s 39%?

The EU has been doing more antitrust crackdowns than any other major body. I find it really hard to believe that they would allow Comcast to purchase even more of Sky.

It should have no effect period. The only reason Fox didn't get full control was due to bad behavior with politics.

 

[zg44]

I think we’re ignoring the big question: will the EU allow Comcast to purchase Disney’s 39%?

The EU has been doing more antitrust crackdowns than any other major body. I find it really hard to believe that they would allow Comcast to purchase even more of Sky.

Both Disney and Comcast have been cleared to purchase 100% of Sky by all European anti-trust bodies (UK and EU mainly for this transaction).

 

[JungleSkip]

I hope everyone saying this won’t affect Park 3 and the theme park division are right. I don’t want another “what could have been” coming out of my mouth when I look at that land they bought

 

[Imperius]

Would have to imagine they bought the land and planned a park and knew they were bidding on sky.

 

[Mad Dog]

I guess time will tell. I'd hate to have a "Thank You SKY" echoing the "Thank You Shanghai' that went on, and the "Thank You Fox" that looks like will follow. ...Hopefully, since Comcast is a company that generally makes 'long term' decisions instead of quarterly report decisions like most corporations do nowadays, that this won't have much of an effect. My take on Universal Orlando theme park cutbacks is that was on the Orlando management team and not Comcast, especially since the same didn't happen in Hollywood or Japan. ...So, I'm keeping my fingers crossed, but my eyes open.

 

[zg44]

I hope everyone saying this won’t affect Park 3 and the theme park division are right. I don’t want another “what could have been” coming out of my mouth when I look at that land they bought

I understand that point of view, but I also think it's worth looking at the overall health of Comcast's businesses.

We saw with Vivendi ownership and GE ownership (partial Blackstone ownership) that the health of the corporate owner is extremely important to making sure that NBCU is properly taken care of (especially the theme parks as the most capital-intensive portion of the business).

In both previous cases, the corporate owner ran into troubles and typically didn't really invest in NBCU and its separate businesses due to too many headwinds at the corporate owner's primary business (Vivendi debt troubles across 90s, and Welsh's move to push GE towards finance in the 90s turned south in the 00s when the debts related to them exploded).



How does that past relate to Comcast? As we all know, Comcast's main business is cable with the broadband business looking very healthy in the short/medium term, but the video business looking extremely unhealthy in the short/medium term.

Comcast's video problems are also paralleled at NBCU's cable channels which face the exact same pressures (cord cutting/cord shaving and the move to OTT services like Netflix/Hulu/Prime etc.).



If Comcast has made any mistake, it's the same that others (whether fellow channel owners like Disney/Fox/Viacom or cable companies like Charter/Cox/etc.) have made in that they haven't adequately positioned themselves to grab subscribers that are going broadband-only and choosing OTT services.

This is where Sky comes in, since Sky has rights to distribute billions worth of content across Europe although it is a mostly legacy carrier (satellite in UK/Ireland/Germany/Austria/Italy) at the moment. While satellite is obviously in decline, if Sky is properly shifted towards OTT (Sky Now TV as it's called), it can be expanded across Europe and target virtually all of Europe while shifting its main countries towards its OTT properties. There's also the cross-sell potential for NBCU's cable channels on Sky across Europe as a growth avenue.

This related back to the US because sooner rather than later, Comcast's main video businesses need to make the same change. If Comcast has made any mistake the last 10-15 years, the biggest is probably that it should have tried to buy Starz from Liberty/Malone before that got merged into Lionsgate. Lionsgate paid appromixately $4.4 billion for Starz which is now as big as Showtime in terms of premium subscribers and is doing well at going to OTT. AT&T is going to do the same thing with HBO as CBS with Showtime and Lionsgate with Starz. They're focusing on moving from premium subs to OTT.


So in an overall sense, we now have Comcast with 45 million video subscribers in the US and Europe and shifting them all to OTT while reducing costs by sharing content ownership if possible (one example of that is Premier League which Sky owns in Europe and NBCU controls in US).

I assume that this is the beginning of Comcast investing in European distribution and content and that they will work to position the overall company to succeed in a world where cord cutting/shaving is the main pressure on the company's main business.

Obviously committing somewhere around $45 billion to Sky and its debt load (after accounting for a Hulu-Sky swap with Disney) is a significant action, but I don't think that it will have any impact on the theme parks.



One other reason for considering is the tax cuts. As a high tax-rate company (due to cost of cable plant etc.), Comcast is going to easily be able to cover the increased leverage with just the extra cash flow from the tax cuts.

And that doesn't count the fact that the tax cuts hugely incentivize Comcast to go on a huge spending spree on park expansion.

I hope this basically explains why Comcast is making this move and how it shouldn't have any real impact on the theme parks which have a huge buildout and spending greenlight ahead of them.

 

[Mad Dog]

The problem with the home video business for the various movie Studios is that streaming revenue has been a complete fail for them. It's destroyed their DVD/BR sales and the streaming content for the most part just gets stolen and not paid for. Even theatrical revenue has suffered because of stolen streaming before a movie debuts. This is highly prevailent but the info is rarely released to the media/general public. The only way streaming pays is when you have a subscriber base, like Netflex has, that's paid up front for the entire service. There's been discussions among the Studios (I have this on solid sources) trying to fix the business model, that was dependent on streaming making good profits, which it hasn't , at this point in time. . So, in that regard SKY, with a large subscriber base, can be positive for Universal if they play the game right.