Comcast Doesn’t Need Sky Or Fox

The contest between Comcast Corporation (NYSE: CMCSA), Walt Disney Co. (DIS) and Twenty-First Century Fox (FOXA) took another dramatic turn on Wednesday when Fox announced it has outbid Comcast for British media giant Sky. Comcast was hoping to land both Sky and Fox, but analysts say it might not be too bad for Comcast to end up empty-handed.

Fox has increased its buyout offer for Sky to $32.5 billion, or 14 pounds per share, above Comcast’s 12.50 pound per share bid for Sky. As recently as last month, Comcast was the highest bidder for both Fox and Sky, but Disney outbid Comcast for Fox in late June. Fox’s new bid for Sky puts Disney in line to potentially land both assets.

GBH Insights head of technology research Daniel Ives says landing both Fox and Sky would be a major shot in the arm for Disney’s streaming service, which is expected to launch in 2019. At the same time, losing Sky would be a blow to Comcast’s Xfinity Instant TV streaming service, which it rolled out in September of last year.

“Sky is a crown jewel for content, especially around Premier rights in Europe, and it speaks to why Disney wants this key asset,” Ives says.

However, according to Credit Suisse analyst Douglas Mitchelson, Comcast management has insisted it was not seeking out either of these deals and was simply being opportunistic.

In fact, CMCSA stock has reacted negatively to each of Comcast’s bids for Sky and Fox. Mitchelson says investors may be concerned that increasing emphasis on acquisitions implies Comcast is struggling to identify organic growth sources. Mitchelson says shareholders may also be worried about financial fallout from these mega-deals.

“The investor reaction to these moves has been quite negative, perhaps due to concerns that Comcast’s strong returns could be diluted by these deals and that Comcast’s stock buybacks could be halted indefinitely,” he says.

Mitchelson says Comcast generates enough cash flow to potentially make its stock a solid long-term investment even if organic growth remains unimpressive.

“Perhaps if Comcast fails at acquiring Fox or Sky, management will return to an even more aggressive return of capital plan,” he says.

Without acquisitions, Mitchelson says…

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