Last week, Comcast Corp. (ticker: CMCSA) officially outbid Walt Disney Co ( DIS) for Twenty-First Century Fox ( FOXA), putting Disney investors in a difficult situation. Regardless of the outcome of the Fox bidding, analysts say Disney shareholders could come out the losers.
Pivotal Research Group analyst Brian Wieser says Disney can’t afford to lose those critical Fox assets ahead of the highly anticipated 2019 launch of Disney’s standalone streaming video service. At the same time, Disney can’t afford to overpay for Fox without hurting the DIS stock price.
“If Disney has to pay a higher price for the Fox Entertainment assets because it engages in a bidding war with Comcast, Disney’s value would be negatively impacted as it would reduce the incremental value the company should be able to generate from synergies associated with the acquisition,” Wieser says.
[Read: Comcast Fires Latest Shot In Fox Bidding War.]
GBH Insights estimates that DIS could realize up to $2 billion of cost synergies within the first 18 months of a completed Fox deal. However, Disney would need to raise its current Fox offer by $13 billion just to match Comcast’s $65 billion all-cash bid.
Wieser says Disney would likely be fine in the long-term even without the Fox assets, but there’s no question Fox’s movie and TV studio assets and networks such as FX and National Geographic could be major selling points for the Disney streaming service.
“Disney can still prioritize direct-to-consumer initiatives without Fox, but its propositions to consumers and creators of content would be stronger with Fox,” he says.
However, GBH Insights head of technology research Daniel Ives says losing Fox would be a tough pill to swallow for Disney and its investors.
“In a nutshell, if Comcast won these assets from the arms of Disney it would be a devastating and hard-to-recover blow to Iger and Disney’s streaming ambitions going forward,” Ives says.
Ives expects DIS to promptly counter with an offer at least matching Comcast’s $65 billion bid. With Fox shareholders scheduled to meet and vote on a deal on July 10, the potential bidding war could escalate quickly for Disney and Comcast.
[See: 7 of the Best Stocks to Buy for 2018.]
GBH Insights has a “highly attractive” rating and $120 price target for DIS stock. Pivotal Research has a “hold” rating and $93 target for Disney.
More from U.S. News
9 Best Cheap Stocks to Buy Now Under $5
7 of the Best Dividend Stocks to Buy for 2018
9 of the Market’s Best Growth Stocks
Walt Disney Co (DIS) Faces Fight for Fox originally appeared on usnews.com
