I started watching the Murdoch family in the mid-1980s, when I was managing a large Australian portfolio. The original business of News Corp, the parent of FOX, was politically-oriented media targeted at right-of-center blue collar workers in Australia. As I saw it, News consistently traded positive news coverage to its right-of-center audience in return for regulatory favors. Rupert Murdoch’s genius was to replicate this model on successively larger stages, first in the UK and then in the US.
Today–again, as I see it–Rupert is moving to turn the family business over to his two sons, on the idea that they will follow in his footsteps as he did his father’s. This desire has two implications for the bidding war between DIS and CMCSA for the FOX media assets:
–the Murdoch family wants equity, not cash. That’s only partly for tax reasons (because taking cash would presumably trigger a big capital gains bill, while taking equity in the successor company wouldn’t). Just as important,
–the next generation of Murdochs wants to continue to have a seat at the media table. The fact that they would own a lot of DIS stock and the fact that there’s no clear successor to the current DIS chairman make it an ideal landing spot. Comcast, in contrast, is another family-controlled company. The last thing Comcast wants is to let in a potentially powerful internal rival. This means CMCSA issuing stock is probably out of the question–and certainly not the favored class of stock the Roberts family uses to maintain control. So Comcast doesn’t suit the Murdochs at all.
Most institutional investors don’t pay taxes, so they’re indifferent to whether they get stock or cash.
I don’t think it’s an accident that the Comcast offer for FOX is at a level that more than compensates any long-term holder of FOX for the tax he would owe on selling. In other words, FOX directors can’t use the grounds that they’re “protecting” shareholders from tax by rejecting the Comcast offer in favor of DIS. After the Supreme Court ruling allowing the ATT/Time Warner merger, they may not be able to argue that a Comcast/Fox merger would run afoul of regulators, either.
At first blush, the Comcast position seems a lot weaker than DIS’s. The Murdochs want to sell to DIS and, I think, actively don’t want to sell to Comcast. As for DIS, it faces a continuing problem finding places to reinvest its huge media cash flows. And opportunities like FOX don’t turn up every day.
What is Comcast’s strategy? My guess is that it’s hoping to raise the offer price to a point where DIS drops out and public pressure forces FOX to sell itself to Comcast. From what I can tell, it would likely need a partner to do so.
I’ve got no desire to participate, but this will be an interesting battle to watch.
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