5 Reasons Why Comcast Is Fighting Disney For Fox

The love triangle between Twenty-First Century Fox FOXA, Walt Disney Co DIS and Comcast Corporation CMCSA has made waves on Wall Street and in the media sector. Comcast’s seemingly puzzling decision to bid for Fox only makes sense if investors think a decade down the line, a Bernstein analyst said Tuesday.

The Analyst

Bernstein analyst Todd Juenger reiterated a Market Perform rating and $102 price target for Disney and a Market Perform rating and $37 price target for Fox.

The Thesis

Comcast investors Juenger has spoken with are very confused as to why the company would drop so much cash on Fox’s assets and deal with the potential headache of tax consequences, regulatory scrutiny and integration costs, the analyst said in a note. (See Juenger's track record here.)

Comcast may be interested in Fox for five reasons, Juenger said: 

• The entertainment video industry will continue to consolidate, leaving only a handful of survivors.
• Netflix, Inc. NFLX, Amazon.com, Inc. AMZN, Alphabet, Inc. GOOG GOOGL, Facebook, Inc. FB and Apple, Inc. AAPL have already mostly secured their spots among these handful of leaders.
• Room probably exists for only one “old media” company on the list in the long run. 
• The lone “old media” survivor will likely be the company which acquires Fox.
• Comcast has much more of an opportunity to create value by focusing on the entertainment business than serving simply as a U.S. ISP.

“Whoever loses Fox not only doesn't consolidate the power, but now has to compete against the one who does, and essentially becomes resigned to be a niche player (or worse),” Juenger said.

Price Action

Disney and Comcast have both significantly lagged the S&P 500 so far this year, losing 6.7 percent and 21.3 percent, respectively.

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