Walt Disney Co (NYSE: DIS ) shares sold off recently when it was announced that Comcast Corporation (NASDAQ: CMCSA ) would bid to buy U.K. satellite-TV provider Sky. This threw a wrench into the works for Twenty-First Century Fox Inc (NASDAQ: FOXA ) and sent DIS stock down to one-month lows.
Sky would give Disney a terrific foothold in Europe, and another distribution channel for both Disney and Fox content that it would own.
The plan was for Disney to buy Sky as part of a deal to buy most of Rupert Murdoch's Fox. DIS CEO Robert Iger has described Sky as the "crown jewel" of Fox. Sky has 23 million subscribers in the U.K., Germany, Italy, and Austria. It has a lot of original, high-quality television programming and also sells mobile phone services and broadband. That's even before considering rights it owns to broadcast soccer's Premier League matches.
However, now with Comcast in the picture, bidding $31 billion for Sky, it complicates the entire situation for DIS stock holders. The bid is roughly 18% higher than what Disney offered for Sky and is all cash. The deal also makes great sense for Comcast as both a content owner - via Universal Pictures and all of the NBC channels - and a content distributor through its cable systems.
Sky is effectively a European Comcast; they both have distribution, content, and also wireless phone service. The deal would almost double Comcast's audience, adding those European viewers to its 29 million subscribers in the U.S..
Disney's Next Move
The next move rests either with Fox or with Disney management, and until that happens, DIS stock looks stuck below $104.
The plan was for Fox to buy the remaining portion of Sky that it did not already own, and then Disney would buy the entire entity. The question now is whether Rupert Murdoch will make a higher bid for Sky himself and then continue through with the DIS stock deal, or if Disney itself will make a bid for Sky.
One might also see this is kind of sour grapes play by Comcast, which tried to bid for Fox's assets last year but lost out to Disney.
Comcast, however, may be facing an uphill battle because the chairman of Sky happens to be Rupert's son, James Murdoch.
I certainly think this is good for Sky shareholders, and that I suspect a bidding war is going to occur, as the stock is trading above the offer price.
But for domestic investors, DIS stock is now looking increasingly attractive. While I'm sure that Disney would love to own all of Sky, it's not the end of the world if that piece of the puzzle does not come together. The amazing body of content in the Fox vaults - including The Simpson's and X-Men - would vastly expand Disney's reach. It will be able to fold in numerous genre franchises under its purview.
Disney Stock is Portfolio Keeper
DIS stock remains the premier entertainment shares for investors of all stripes. If you own a long-term diversified portfolio, I would be hard-pressed not to include Disney stock in it. With shares now trading around $103 per share, some 17% below the November 2015 all-time high for DIS stock of $120, it seems to me that there is significant upside here anyway.
The fact that the market got the jitters and sold the stock off just because of a wrench in the Sky deal seems like an overreaction to the news.
Disney has, and will have, so much content to exploit, literally enough to last for a generation. Investors might as well buy here on the cheap when they can.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He has 20 years' experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached atTheLibertyPortfolio@gmail.com. As of this writing, he did not hold a position in any of the aforementioned securities.
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