Comcast could spend $90B in cash to compete with Disney and Netflix

Star Wars may be playing live in Media World this summer.

Comcast Corp. said on Wednesday that it has "well-advanced" plans to make a hostile all-cash bid for the 21st Century Fox Entertainment assets that the Walt Disney Co. has already agreed to buy for $52 billion.

The Philadelphia company could bid $60 billion for the Fox movie studio, Fox regional sports networks, international businesses, and other Fox assets, and according to published reports has been arranging financing for the all-cash deal. Comcast has not said officially how much it will bid for the Fox assets, but analysts say it could be 15 percent to 25 percent higher than Disney's offer.

But much has to happen before this can become reality: A federal judge in Washington has to rule on the AT&T/Time Warner merger, the Fox board would have to embrace Comcast's higher cash offer, Disney would have to throw in the towel on a Fox deal, and Fox shareholders would have to OK the Comcast deal in a vote.

Comcast has separately made a firm offer for the Sky satellite-TV business for $31 billion, taking the total potential deals in Comcast's pipeline to about $90 billion, all in cash.

The Fox and Sky deals would transform Comcast into a global entertainment giant that could compete with Netflix and break out of the U.S. market with its melting cable-subscriber base. But the deals also would transform Comcast into the globe's second-largest corporate borrower with $164 billion in debt, behind AT&T/Time Warner if that merger goes through, according to Moody's Investor Service. Comcast has said it can deal with the debt and would bring it down quickly.

"Comcast — if they pursue this — are throwing their balance sheet and credit rating to the wind," Moody's Investors Service analyst Neil Begley warned on Wednesday. He said he thought Comcast should consider growing its business internally — as Netflix has — instead of by big acquisitions.

But if Comcast insists on deals, Begley added, "It's now or never." There are few other domestic or global companies with the revenues or profits that could meaningfully  help Comcast grow through acquisitions, he said.

On Wednesday evening, Moody's placed Comcast's debt on a review for a possible downgrade, based on the advanced stages of a possible bid for Fox assets.

Tuna Amobi, analyst with research firm CFRA, said that the Fox deal presents a "once-in-a-lifetime opportunity" for Comcast because "almost no one expected Rupert Murdoch and his family to sell out at this time."

Comcast CEO Brian Roberts met personally with Rupert Murdoch in New York on the deal in late 2017 but was rejected for Disney.

The $90 billion that Comcast would borrow to do the deals concerns Amobi. He also accepted the rationale that Comcast or Disney had to grow bigger to compete globally and with streamers.

Comcast disclosed its game plan Wednesday because it believed that the Rupert Murdoch-controlled 21st Century Fox was rushing to hold a special shareholders meeting to seek approval for the Disney offer. Disney has offered to buy the Fox assets for Disney stock and Comcast has been telling investors that its cash deal would be "superior" for Fox shareholders — or a sure thing with hard cash vs. Disney stock that could sink in value.

Comcast and Disney could face harsh scrutiny from Justice Department antitrust lawyers because they already own substantial entertainment assets. Comcast owns the NBCUniversal entertainment conglomerate, two movie studios, the NBC television network, and cable channels. Disney owns ESPN sports-media juggernaut, movie studios, a huge film library, and the ABC broadcast-TV network. Disney also owns the rights to the Star Wars movie franchise after buying Lucasfilm in October 2012.

Federal regulators opposed Comcast's last big deal, for Time Warner Cable, and Tim Wu, professor at the Columbia Law School and author of The Master Switch: The Rise and Fall of Information Empires, said in an interview on cable news that he believed that Comcast could face a harder antitrust review in Washington than Disney.

But Comcast points out that Disney-owned national ESPN sports networks would combine with regional Fox sports networks in a Disney/Fox deal, creating a sports-media juggernaut. In addition, Disney would have big market positions in children's shows and animated movies.

An association of small cable operators, the American Cable Association, warned on Wednesday evening that Disney or Comcast deals for Fox assets could harm consumers.

Much of what happens next will be determined in Washington, not by regulators, but by U.S. District Judge Richard Leon.

Leon is expected to make a decision in the AT&T/Time Warner deal on June 12. The U.S. Justice Department sued to stop the deal on antitrust grounds, saying that a combination of AT&T and HBO-owner Time Warner would be bad for consumers. Experts say that if Leon rules unfavorably toward AT&T and either stops the deal or places restrictions on it, Comcast would be reluctant to acquire the Fox assets.

But observers think that AT&T likely won its arguments in court and will be allowed to acquire Time Warner. This would open the door to Comcast/Fox, they say. Comcast is not expected to make a formal offer until after the AT&T/Time Warner case is decided.