Disney Pulls the Trigger on Fox Acquisition

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Anyone who is surprised by Thursday morning’s announcement from Walt Disney Co. (NYSE: DIS) that it is acquiring a large portion of Twenty-First Century Fox Inc. (NASDAQ: FOXA) has been asleep for the past few months. The deal will cost Disney about $52.4 billion in stock and includes the Fox movie and television studios, along with cable and international TV businesses.

It does not include the Fox Broadcasting network and stations, Fox News Channel, Fox Business Network, FS1, FS2 and Big Ten Network. These properties will be hived off immediately before the acquisition is completed and spun-out into a separate company.

Disney is paying Fox shareholders 0.2745 shares of its stock for each Fox share they own. Including debt of approximately $13.4 billion, the total value of the deal is about $66.1 billion.

Disney CEO Robert Iger said:

The acquisition of this stellar collection of businesses from 21st Century Fox reflects the increasing consumer demand for a rich diversity of entertainment experiences that are more compelling, accessible and convenient than ever before. We’re honored and grateful that Rupert Murdoch has entrusted us with the future of businesses he spent a lifetime building, and we’re excited about this extraordinary opportunity to significantly increase our portfolio of well-loved franchises and branded content to greatly enhance our growing direct-to-consumer offerings. The deal will also substantially expand our international reach, allowing us to offer world-class storytelling and innovative distribution platforms to more consumers in key markets around the world.

Iger, whose contract with Disney was scheduled to end in 2019, is remaining until 2021 “at the request” of both companies’ boards of directors.

In Iger’s statement, he twice mentions distribution, once directly (“innovative distribution platforms”) and once indirectly (“our growing direct-to-consumer offerings”). This is more than just a shot over the bow at Netflix Inc. (NASDAQ: NFLX). Disney has already severed its relationship with Netflix beginning in 2019, and Iger’s comments make clear that he plans to go after the streaming leader.

Time Warner Inc.’s (NYSE: TWX) HBO is another target. That bit in Iger’s comment about “world-class storytelling” indicates that he plans to raise Disney’s story-telling chops. Time Warner is currently involved in a fight with the U.S. Department of Justice related to its merger with Verizon Communications Inc. (NYSE: VZ) and that sort of thing can be distracting.

Disney will issue 515 million new shares to Fox shareholders, giving them a 25% stake in the combined company. No expected date was offered for the completion of the transaction, but Disney expects cost savings of at least $2 billion for the second fiscal year following the deal’s closing.

Investors are not wild about Disney’s deal. Shares traded down about 1.8% in Thursday’s premarket, at $105.69 in a 52-week range of $96.20 to $116.10. The 12-month consensus price target is $109.68.

Fox’s stock traded down 3.2%, at $31.70 in a 52-week range of $24.81 to $34.75. Investors may have been looking for some cash and are unhappy with the all-stock deal.