After the merger and acquisition (M&A) floodgates opened three weeks ago with the $85 billion approval of Time Warner by AT&T, the world continues its acceptance of consolidated media ownership. Last week’s M&A mania got even more exciting with Disney’s $71.3 billion acquisition of 21st Century Fox. The bid outdid Comcast’s all-cash offer of nearly $65 billion. Disney’s offer was comprised of about $53 billion in stock and nearly $19 billion in cash. The higher offer comes in other advantages such as a healthier balance sheet, growing revenue streams, and higher chances of regulatory approval, if challenged.
In his book, The Dhandho Investor: The Low–Risk Value Method to High Returns, Mohnish Pabrai coined an investment approach known as "Heads I win; Tails I don't lose much." Q3 2021 hedge fund letters, conferences and more The principle behind this approach was relatively simple. Pabrai explained that he was only looking for securities with Read More
Capital spending frenzies offer an ultimatum to media companies: spend the most you can on great original content or lose market share. The acquisition of a majority of Fox assets gives Disney the potential to capitalize on the original content trend. The new, massive Disney is estimated to spend nearly $25 billion on new content in 2018. This would make Disney #1 in content spending amongst any media company on the globe.
In the digital media space, Netflix is stepping up last years plans by 41.6 percent with plans to spend $7 billion on creating original content. Hulu, the massive joint venture between Comcast, Disney, Time Warner, and Fox, plans to up spending by 53 percent, spending $2 billion on original content. Hulu’s ownership just got a lot more interesting as Disney becomes the majority shareholder of the $9 billion competitor to Netflix. Still, Comcast and AT&T have their hands on Hulu with minority shares in the company. One can’t help but think that there may be a conflict of interest here, but only time will tell.
New Revenue Stream
Disney can now create a plethora of content with its newly acquired Fox assets. As Marvel Entertainment went broke in the ‘90s, they sold the rights to Stan Lee’s treasured X-Men, including Deadpool. Soon after, Marvel Entertainment was acquired by Disney amid the Great Recession in 2009, whom then decided the only way to revive comic books [dollar signs] is through a cinematic universe. From the birth of the Marvel Cinematic Universe (MCU) in 2011 per BoxOfficeMojo, Disney has grossed $16.9 billion in those movies alone. With the addition of characters such as Wolverine, Professor X, Magneto, and Mystique, Marvel can finally bring the original comic book crew to the big screen.
The company’s finances continue to get the approval from brokerages like Fidelity, who consider it financially healthy; alongside positive long-term sentiment amongst institutional investors. More specifically, the company reports a Q1 2018 debt ratio of about 0.501, with a current ratio of 0.85 after the acquisition. At the end of 2018’s first quarter, the company reported a growing net income the last five years and is currently on track to report a bottom line of $11.5 in 2018. The company has paid a consistent dividend since 2015, has a current market capitalization of $155.1 billion, and holds 26.1% market share, reported by MarketWatch.
Article by By Mike Genna, Benzinga