A prominent analyst on Monday downgraded Walt Disney Co.’s stock to a “sell” rating, citing concerns that a potential bidding war with Comcast Corp. might cause the company to overpay for 21st Century Fox’s entertainment assets.
Comcast last week bid $65 billion in an all-cash offer for much of Rupert Murdoch’s Fox, which had already agreed to be sold to Disney in an all-stock deal. The Comcast offer represented a 19% premium to the Disney proposal.
Disney is widely expected to raise its offer for Fox properties, which include the Century City film and TV studios, cable TV channels FX and National Geographic, regional sports networks and Fox’s international holdings.
The planned acquisition is seen as an important component of Disney’s plan to compete with digital insurgents such as Netflix by bolstering its own upcoming streaming service with more content. Still, if Disney has to boost its offer for Fox, that could reduce the company’s value for shareholders, said Pivotal Research analyst Brian Wieser in a research report.
“Certainly, we see industry consolidation as positive for the industry relative to its absence,” Wieser said in his report. “However, we also think that 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.”
On the other hand, if Disney loses Fox to Comcast, it would dampen the company’s efforts to forge a streaming future for itself, Wieser said. Disney and its investors, he noted, believe that the company’s focus on a direct-to-consumer strategy is the right move to adapt to shifting audience behavior.
“The absence of completion of the transaction would also be negative for Disney as it would mean the company would be unable to realize the synergies it expects to produce from the transaction,” Wieser said. “The strategic position of the company would further be weakened.”
Disney did not immediately respond to requests for comment.
Shares of the Burbank media company fell 2%, or $1.79, to $107.06 in Monday trading on Wall Street. Pivotal Research, which has a target price of $93 on the stock, is the lone brokerage with a “sell” rating for Disney among analysts who cover the company, according to FactSet.
Comcast submitted its offer the day after a federal judge in Washington, D.C., approved AT&T Inc.’s purchase of Time Warner Inc. The judge said the transaction did not violate antitrust laws, and the regulatory go-ahead was seen as a sign that a Comcast-Fox deal could also win government approval.
It is not clear how Disney, led by Chairman and Chief Executive Robert Iger, will respond to the Comcast bid. Fox’s board is expected to meet Wednesday to weigh Comcast’s proposal. CNBC on Monday, citing anonymous sources, reported that Disney is expected to add cash to its bid, but did not say how much.