Disney raises their bid for Fox

The battle moves to the next level with Disney making a huge raise to Comcast’s all cash bid. The Disney bid is a mix of cash and stock, which is not only superior in price, but obtaining Disney stock is much more attractive than just cash. We feel Disney stock is way undervalued as it trades at a 14 PE versus the markets 24 times earnings especially since historically it trades at 18 times. We feel Disney is worth at minimum $125 and a high of $140 per share so the stock deal for Fox represents a much bigger opportunity for shareholders than an all cash Comcast deal. The combined Disney-Fox will be the leader in Hollywood and make Netflix number two. By combining the IP and production studios of the two giants, Disney-Fox will have more than enough content for its streaming services and will have huge leverage in Hollywood with talent. Also, Disney would get control of Star India, which is very important to them as they want to enter the Indian market in a big way. Disney is a much better steward of assets than Comcast as well and can use the Fox IP to expand the Marvel Universe as well as other brands under the Disney name. Comcast just wants to beef up its vertical integration but doesn’t add much to the deal other than cutting costs and firing people. Comcast is also using a ton of leverage to buy Fox, which in turn will cause Comcast to be the most indebted company in the world if they win the Fox deal. Now with the higher bid, Comcast will need to beat it, and by a large margin to make up for the cash component versus stock. I just don’t think they can swing more debt and Iger knows it… Checkmate.

Does Comcast risk being too leveraged and then have to sell off business? No, that would defeat the point of buying the assets. We think this is a win-win for Disney and Fox and despite Disney having to pay more, they will do very well with these assets and solidify Disney’s future as a stand-alone dominating player in the entertainment business.

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We own Disney and Fox for clients, firm, family, and ourselves.

Ross Gerber is CEO and president of Santa Monica, Calif-based Gerber Kawasaki Inc., an SEC-registered investment advisor with approximately $750 million in assets under management as of 5/22/18. Gerber Kawasaki clients, firm and employees own positions in MGM, Boyd, Disney and Verizon. Readers shouldn’t buy any investment without doing their own research to determine if the investments are suitable to their situation.