Twenty-First Century Fox Inc – Walt Disney Co Merger: What Analysts Say

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The deal between Twenty-First Century Fox Inc (NASDAQ:FOXA) and Walt Disney Co (NYSE:DIS) has been confirmed, so the companies are moving forward with it. Reports of a Fox-Walt Disney merger have been circulating for more than a month, but today’s announcement is the first official statement on Disney buying Fox assets.

Fox-Walt Disney merger announced

The Fox-Walt Disney merger is one of the biggest media deals ever made, and it values the Fox assets that are being acquired at approximately $52.4 billion. Under the terms of the deal, Twenty-First Century Fox shareholders will receive 0.2745 shares of the combined company for every share of Fox they own. The agreement also has Disney assuming $13.7 billion of Fox’s debt.

The Fox Broadcasting network and several Fox stations, including Fox Business, Fox News, the Big Ten Network, and FS1 and FS2 will all be spun off from Twenty-First Century Fox to shareholders. The Fox-Walt Disney merger also transfers some of Fox’s TV and movie studios, the company’s stake in Hulu, which gives it a controlling share, and the rights to some Marvel characters.

To pay for the acquisition, Walt Disney will issue 515 million new shares. Disney expects to see $2 billion or more in cost savings from the acquisition and looks for it to be accretive to earnings in the second fiscal year following the closing of the transaction. Robert Iger will retain the chairman and CEO post at the combined company through 2021.

Disney set to take on Netflix

GBH Insights analyst Daniel Ives said in a note this morning that the Fox-Walt Disney merger puts Disney on a “clear runway to gain market and mind share from the likes of Netflix.” He describes it as a “home run deal” for the company and believes it’s the right move at this time. Bringing the assets together makes the House of Mouse a more formidable opponent for both Netflix and Amazon in both content and streaming as it prepares to launch its own streaming service in 2019.

He feels that the controlling stake in Hulu could “propel Disney’s streaming machine,” noting that the cord-cutting practice among consumers is changing the media landscape. He expects the acquisition to make Disney “a major streaming disruptor” if executed successfully while also building up its already-rich content library.

Regulatory scrutiny of the Fox-Walt Disney merger expected

The Los Angeles Times notes that much regulatory scrutiny can be expected, as the Justice Department has been particularly focusing on mergers in the media industry. With Disney buying Fox assets, antitrust concerns are naturally raised because it reduces the number of major Hollywood movie and TV studies from six to five. It will also make Disney much more dominant in the area of sports media.

Disney already owns ESPN, and after buying the Fox assets, it will also own more than 22 regional sports channels, which include Fox Sports San Diego, Fox Sports West and Prime Ticket. Additionally, with Disney buying Fox assets, the former gets a 60% stake in Hulu, which grants it a major presence in the emerging streaming market.

Why regulators could block Walt Disney from buying Fox assets

Experts told the LA Times that regulators will be considering whether allowing Disney to buy these Fox assets will reduce the number of options consumers have and/ or raise prices. They will also be considering whether Disney will gain too much power through the merger. The Justice Department filed a lawsuit to block AT&T’s pending purchase of Time Warner for $85 billion, so there is some question whether the Fox-Walt Disney merger will elicit the same response from regulators.

Following the news about Walt Disney buying Fox assets, shares of Disney ticked lower by as much as 0.57% to $106.76, while Twenty-First Century Fox stock sunk another 1.53% to $32.25, adding to Wednesday’s losses.

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