As Comcast Offers $65 Billion, At What Point Is Fox Too Expensive?

Comcast (NASDAQ: CMCSA) made an all cash offer for most of 21st Century Fox (NASDAQ: FOX) for $65 billion. Walt Disney (NYSE: DIS) had previously agreed to purchase the same assets for less.  Disney may make a counter offer. At some point the price will be foolhardy, based on the cash flow and net profits the businesses in question produce, and any reasonable forecast of their future performance. Most of the assets are “old media” properties like cable network and studio properties

The market showed no sign of whether the deal is reasonable at the current price or not. Shares in Disney and Comcast were slightly better than flat. Fox shares, however, rose 7.5% to $43.48, an indication that investors expect a higher offer

The Comcast letter read, in part:

Comcast proposes to acquire 100% of the outstanding shares of 21CF for $35.00 per share in cash, reflecting a $65 billion equity value for 21CF (after giving effect to the proposed spinoff of New Fox) and a premium of approximately 19% to the value of Disney’s offer as of noon today.

Our all-cash proposal will provide 21CF shareholders with certain value and immediate liquidity. Our proposal is not subject to a financing condition. We have received Highly Confident Letters from Bank of America Merrill Lynch and Wells Fargo.

Additionally,

In addition to our payment of the $2.5 billion reverse termination fee, in the unlikely event that our transaction is terminated due to a failure to obtain the required regulatory approvals, we will also agree to reimburse 21CF for the $1.525 billion break-up fee required to be paid to Disney in connection with termination of the Disney transaction and entry into a merger agreement with us.

Among the assets which would be purchased as part of the deal are the Fox studios, its cable networks, and international pay TV. The risk for a buyer is that most of these are legacy assets which have still not proven that they can flourish in a world in which pay cable subscriptions are dropping, and movies studios compete with the likes of Amazon (NASDAQ: AMZN) and Netflix (NASDAQ: NFLX)  If the Fox assets cannot be adapted for the new media world, the current price is already too expensive, and the debt burden a buyer would take on might be unsustainable.