In a highly anticipated and historic deal, Disney (DIS) is acquiring much of 21st Century Fox's (FOXA) assets -- everything except the Fox Broadcasting network and stations, Fox News Channel, Fox Business Network, FS1/2 and the Big Ten Network. Those assets will be spun off prior to the merger with Disney.
Fox shareholders will receive one share of the new Fox company plus 0.2745 shares of Disney in a deal valued at $52.4 billion, excluding $13.7 billion in net debt that Disney will assume.
Disney said it is paying 11.9x fiscal 2018 EBITDA expectations for Fox's assets. That multiple would fall to 8.3x including the anticipated cost synergies Disney expects to realize over time.
Combining with Disney are 21st Century Fox's film production businesses, which include blockbuster franchises like Avatar, X-Men, Fantastic Four and Deadpool, as well as The Grand Budapest Hotel, Hidden Figures, Gone Girl, The Shape of Water and The Martian—and its television creative units, which include This Is Us, Modern Family, The Simpsons and many more TV series. Disney will also acquire FX Networks, National Geographic Partners, Fox Sports Regional Networks, Fox Networks Group International, Star India and Fox's interests in Hulu, Sky plc, Tata Sky and Endemol Shine Group.
Disney is going all-in on content in the face of the changing media landscape. This monumental deal comes ahead of its planned direct-to-consumer (DTC) launches for ESPN next year and Disney in 2019. This over-the-top (OTT) streaming strategy is Disney's answer to the secular decline in traditional television subscribers and ratings as the likes of Netflix, Facebook and YouTube garner more attention from consumers. Disney's consolidation of the media sector will allow it to continue to leverage the massive amount of IP the company has with its endless blockbuster franchises. The deal gives Disney more international television media exposure and dominant market share in the film production business -- where Disney was already number one. The regional sports networks will compliment ESPN. Disney will also gain a majority stake in the popular streaming site Hulu -- both Disney and Fox own 30%. Bob Iger also agreed to continue as Chairman and CEO through the end of 2021 to make sure the company's bold strategy is carried out in full. Disney had been searching for a successor for some time.
For Fox, this represents a pullback of sorts. Rupert Murdoch tried to acquire Time Warner but was rebuffed in 2014. Fox is currently in the process of acquiring the rest of Sky plc it did not already own. UK regulators were leaning towards blocking that deal but the transfer to Disney appeases those concerns. Rupert Murdoch said Fox is pivoting, not retreating. He said the new Fox will be a growth company. It does appear to be a sound strategic move that allows the company to focus on its flagship broadcast and news networks. Fox said it will have robust free cash flow and an attractive dividend. It will also have a 25% stake in Disney. Rupert Murdoch said Fox has no immediate plans to merge with News Corp (NWSA), which it spun out of in 2013.
Investors are reacting positively to the deal today (FOXA +5%, DIS +3%) even though most of the deal's details had already leaked in the media in recent weeks.