Will Disney stock beat Comcast cash?
Fox would gain $3.5 billion more by going with the offer of equity
Cash may be king, but Walt Disney Co.’s stockbased offer for 21st Century Fox entertainment assets could give it a $3.5 billion edge over Comcast Corp.’s rival bid.
Comcast’s $65 billion all-cash deal could stick Rupert Murdoch and his family with an upfront federal tax bill of $2.6 billion for their 17 percent stake, compared with no taxes now for Disney’s $71 billion cash-and-stock offer if Murdoch takes his entire payday in Disney stock. That — along with Disney’s higher offer — means the Murdochs could net as much as $11.8 billion from Disney’s proposed deal, compared with $8.3 billion with Comcast.
The terms of the Disney deal give Fox shareholders the option to take their payment in stock or cash or a mix of the two. If a U.S. shareholder receives only shares, no gain or loss will be recognized, according to the proxy filing.
Cash proceeds, though, will be subject to a 20 percent capital gains tax plus a 3.8 percent net investment income tax, the same as for the Comcast deal, according to Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. There could also be state-level tax implications since the Murdochs reside at least part of the year in California and New York.
Comcast would need to raise its all-cash offer by 42 percent to $49.87 a share, or $92 billion total, to give the Murdochs the same immediate benefit of $11.8 billion offered under Disney’s deal, according to calculations by Bloomberg, which assume the Murdochs would take all their proceeds solely in stock and the cost-basis of their Fox holdings are negligible. In this scenario, the Murdochs wouldn’t be taxed on the Disney shares until they sold them.
Fox and Comcast declined to comment. Disney didn’t respond to a request for comment.
Tax considerations make up a hefty chunk of the June proxy filing sent to Disney and Fox shareholders. One section details the maneuvering of both companies to mitigate the tax impact of Fox’s hook stock, which are shares issued by a parent company and held by its subsidiary. There are still plenty of unknowns.
“The transaction is really complicated,” Rosenthal said. “Lots of the tax consequences are uncertain.”
Tax implications aren’t the only consideration for Fox stockholders. Disney has already won U.S. antitrust approval for its purchase, while Comcast’s bid could face regulatory hurdles. Shareholders may also value the stock portion of Disney’s offer if they believe the value of those shares will continue to rise. Disney shares have gained 65 percent in the past five years.
Fox shareholders are scheduled to vote July 27 on Disney’s bid.