The big winner in the content industry? Twenty-First Century Fox (NASDAQ:FOX, NASDAQ:FOXA). When Walt Disney (NYSE:DIS) announced it was buying a majority of the assets from Twenty-First Century Fox,Fox stock soared.
But shares have had constant buyers thanks to others bidders also wanting in. Specifically, Comcast (NASDAQ:CMCSA) has been trying to muscle its way into the mix. It’s left investors wondering whether they should buy Disney, Comcast, Fox stock, all three or none of them at all.
The Fox Stock Deal
AT&T Inc (NYSE:T) got the federal green light to acquire Time Warner in an $85.4 billion deal just last month. That gave Comcast’s management the confidence to pursue Fox. Both companies want Fox in order to bolster its content assets. Interestingly each involved party here owns 30% of the streaming platform Hulu.
Assuming regulators don’t force them to divest some of that asset, the assumption is that the winning bidder (either Comcast or Disney) will control a majority of Hulu. Of course, all of this content-bolstering is being done to gear up for the streaming wars that Netflix, Inc. (NASDAQ:NFLX) has caused.
Disney had originally planned to buy most of Fox’s assets in a deal worth $52 billion in late 2017. Disney wanted the assets, as well as Fox’s stake in Sky, as the former was negotiating to buy the rest of the latter.
Disney CEO Bob Iger has called Sky a “crown jewel” in the past. More content for Disney also gives it leverage in its planned streaming platforms.
Because of Disney’s stock offering in the deal along with seemingly lower regulatory hurdles, Fox management was content to accept the offer. After the AT&T-Time Warner deal though, Comcast came barging through the door with a significantly higher $65 billion deal with an attractive breakup fee and seemingly less regulatory concern than before.
This of course forced Disney’s hand, which is now willing to pay an eye-popping $71 billion for Fox’s assets. On July 27 the two parties are getting set to vote on the deal and the Justice Department apparently won’t get in the way.
The question now becomes, will Comcast make a counter offer?
Evaluating Fox Stock
So what should investors do? By buying Fox now, investors would be looking for more upside. Admittedly though, they’re late to the party. At this point, there’s more upside if Comcast comes back and little downside if it backs away.
It helps that there’s a “land-grab” happening in the content world right now. If Disney falls out of the running, Comcast seems more than happy to fill the role as Fox’s asset buyer. Fox management made sure to leave enough time for Comcast to counter-offer Disney’s deal and that makes obvious sense.
Should Comcast fail to make an offer, it seems likely that shareholders will vote to approve the Disney offer. Fox shareholders have more at play than just a buyout though, because Disney is making a stock-offering as part of the deal.
In other words, when the deal is presumably done, investors in Fox stock can also own DIS stock.
So can investors still buy Fox? I say, hesitantly, yes. I don’t typically like to buy M&A candidates that have been bid up. But because we’ll receive stock in a discounted asset (in my opinion) and because there are multiple bidders with another chance to push FOXA stock higher, the risk is reduced.
Trading the Fox Stock Buyer
To be honest, both Comcast and Disney are attractive from a valuation perspective. Given that Disney is the front-runner in the deal, here’s what the stock charts are looking like:
No matter what downtrend line investors use (there are two drawn on the chart above), DIS stock climbing above them is bullish. It helps too that the stock is above all three major moving averages.
Should it consolidate here, shares could begin to move higher and retest those recent highs just over $109. Below these levels is obviously bad. Generally speaking, $100-ish has been support for DIS stock.
It should be clear that the risk/reward to buying Fox isn’t as great as it has been in the past. But it’s not a completely futile effort, particularly if Comcast comes back with another offer.
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