Disney (NYSE:DIS) made a bid to acquire certain media assets of Twenty-First Century Fox (NASDAQ: FOX) (NASDAQ: FOXA) in December 2017, but what could have been a simple acquisition has turned into an outright bidding war. The company's initial bid of $52.4 billion was eventually topped by a $65 billion offer from cable giant Comcast (NASDAQ:CMCSA). Disney countered with $71.3 billion, and many people believe Comcast will soon come back with a higher proposal, though no official announcement has been made.
There is a growing body of evidence, though, that the one-upmanship may be drawing to a close, with Disney emerging victorious. While there are no guarantees, there are several reasons to believe that Comcast could fold its wallet and call it a day.
1. Disney has already received U.S. regulatory approval
On June 27, Disney announced that it had received the go-ahead from the Antitrust Division of the U.S. Department of Justice (DOJ) to proceed with its acquisition of Fox's assets. The sole condition for the approval was that Disney would be required to sell off the 22 regional sports networks that it would gain from its merger with Fox.
This requirement is understandable, given Disney's ownership of ESPN: the company's flagship sports network. The DOJ felt that adding the Fox sports channels and their 61 million viewers would ultimately be anticompetitive.
With the largest and most onerous approval process completed, Disney has an edge in the proceedings.
2. Comcast's advantage may have gone up in smoke
Comcast had long planned to make a bid for Fox, but it was concerned about the regulatory environment given the DOJ's objection to AT&T's offer to buy Time Warner. Ultimately, the judge ruled for AT&T, and Comcast believed that this outcome improved its chances of staving off an antitrust complaint.
Going against the express recommendation of the trial judge, however, the DOJ has announced that it will appeal the ruling. This calls the future of the AT&T-Time Warner deal into question and makes it much less certain that Comcast's bid for Fox would be approved. In deciding to side with Disney, Fox executives have previously expressed concerns about whether Comcast's bid could survive the regulatory process. The DOJ's recent decision could add weight to those fears.
3. Disney gains backing from prominent proxy advisory firms
In the wake of the bidding war, two influential proxy advisors -- Institutional Shareholder Services and Glass Lewis & Company -- have sided with Disney in the proceedings. These companies act as representatives and advisors for companies and large institutional investors, and provide recommendations as to how these investors should vote in specific corporate actions. Both companies have recommended that Fox shareholders vote in Disney's favor, with Glass Lewis indicating that Disney represented "a unique, prospectively far-reaching opportunity..." The company went on to say that Disney would be better able to compete in the emerging paradigm that increasingly favors streaming.
While shareholders are under no obligation to heed the advice of the proxy advisors, institutional investors will likely follow their lead.
4. The consequences of winning
There's no way to know for sure what the next steps will be, and Comcast could still put together a higher bid. Moody's analysts Neil Begley and John Diaz have sharpened their pencils and concluded that Comcast's previous bid of $65 billion would leave the company saddled "with approximately $170 billion of total debt," making it "the world's second-most indebted company (excluding financial institutions and government-related entities) ..." behind only AT&T. This would leave the company much less financial flexibility.
Some people have suggested that the speed at which Comcast countered Fox's most recent bid for Sky PLC shows that Comcast may focus on a fight it believes it can win, leaving the Fox acquisition to Disney.
Comcast may eventually decide that enough is enough, but if recent events have taught us anything, it's that it isn't over until it's over.