Comcast chairman and CEO Brian Roberts made his case for its $65 billion offer for certain Fox assets currently betrothed to The Walt Disney Co., adding that his company’s proven track record in large-scale M&A and his experience running a “family business” make Comcast the better choice.
“We are, in our minds, the right buyer,” Roberts said on a conference call with analysts of the Fox offer. He added he saw similarities in the way the Murdoch family built Fox into the programming powerhouse it is today, with his own family’s vision for Comcast. Roberts likened Fox executive chairman and founder Rupert Murdoch’s efforts to build Fox into one of the premier content companies in the world, to his own family’s journey.
“When I started working at the company we were a small regional cable company,” Roberts said. “My father and I and later Steve [Burke, NBC Universal CEO], all had a vision to create a dynamic integrated media and distribution company, first by gaining scale in domestic cable, and then by adding a scaled domestic content business.”
But later, Roberts offered a glimpse into why Comcast felt the need to muscle in on the Disney deal.
“We firmly believe that the truly great media companies of the next century will be large integrated entities with multiple growth engines across a wide swath of the global entertainment industry,” Roberts said.
In other words, the company with the most toys in the most countries wins.
But Disney believes that too, and it will likely fight hard to keep its Fox deal intact. Roberts and Burke didn’t talk about a potential bidding war with Disney, but chief financial officer Michael Cavanagh, asked if Comcast would be willing to divvy up assets to avoid a fight, said the company was all-in for the Fox properties.
“We’re in this from our own perspective,” Cavanagh said. “We like everything about this transaction and that is our focus.”
Comcast concentrated on the international aspects of the transaction – it said the addition of the Fox assets (which, including British satellite company Sky, derive 70% of their revenue outside of the U.S.) would boost Comcast’s international revenue from 9% of total sales to 27%.
But the deal will be expensive. Comcast said the $65 billion cash offer would increase leverage to more than 4 times cash flow, up from its current level of 2.2 times. While Comcast has been reluctant to significantly increase its debt in the past, Roberts said he confidence in Comcast’s existing businesses has increased his comfort level.
Roberts called the increased leverage “temporary.”
“I think we will be very focused on getting leverage back to where we are,” Roberts said. “That ‘s the benefit of being in the subscription business, here’s a predictability.”
Cavanagh said the price being offered to Fox ($35 per share) is basically the same offer Comcast made in December (an all-stock deal which was rejected) rounded up to the next dollar. He added that with cost synergies of about $2 billion and the strengths of the combined businesses, leverage can return to a consistent level in a reasonable amount of time.
Leverage aside, the addition of the Fox assets will give Comcast a leg up on a rapidly changing media landscape with more compelling content and a bigger stake in online video pioneer Hulu. With Fox’s 30% interest in Hulu, Comcast would have 60% of the online company. Burke said Hulu is a “very important part of the deal,” and that Comcast has every intention of investing in and growing that asset.