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Should Comcast Make a Counterbid for Fox to Overshadow Disney?

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Comcast is mulling over the Fox deal

The Walt Disney Company (DIS) has raised its offer to $71.3 billion for 21st Century Fox’s (FOXA) entertainment assets, leaving media and cable company Comcast (CMCSA) in distress.

Comcast bid $65 billion for Fox’s assets on June 13. Now Comcast’s CEO, Brian Roberts, has to decide on how to respond to the escalating bidding war for Fox’s assets.

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Is a higher offer viable for Comcast?

Comcast is reportedly contemplating an offer of $75 billion or even higher as a counterbid to gain control of Fox’s assets. However, according to sources, an offer of ~$41 or $42 per share in cash would significantly hurt Comcast’s credit rating and could burden it with a massive debt load.

In a separate deal, both Comcast and Fox are looking to buy a 61% stake in European pay-TV group Sky. However, Comcast has made an all-debt offer of 12.50 British pounds (~$31 billion) per share for Sky, while Fox is quoting 10.75 pounds per share. Fox already has 39% ownership in Sky, which is one of the assets on which both Disney and Comcast are bidding.

Comcast’s long-term debt at the end of the first quarter was $63.7 billion, up from $58.2 billion in the previous year’s quarter. Comcast’s current $65 billion cash offer for Fox, along with its potential 61% stake in Sky, is expected to cause its debt load to shoot up to $170 billion. In fact, the deal would make Comcast the world’s second-most indebted company (excluding financial institutions and government-related entities) after AT&T (T), which has debt of ~$249 billion after its acquisition of Time Warner.

It will be a tough decision for Comcast’s CEO whether to raise the offer or not.

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