The Walt Disney Co. has set a $52.4 billion, all-stock deal to acquire 20th Century Fox and other entertainment and sports assets from Rupert Murdoch‘s empire. The deal between Disney and 21st Century Fox marks a historic union of Hollywood heavyweights and a bid by Disney to bolster its core TV and film businesses against an onslaught of new competitors in the content arena.
Key elements of the transaction unveiled Thursday morning:
- The deal values the 21st Century Fox assets in the transaction at $66.1 billion, including $13.7 billion in 21st Century Fox debt, or $28 a share. The enterprise value of the deal is $69 billion.
- Disney chairman-CEO Bob Iger has extended his contract with the company for another two years, through the end of 2021, in order to oversee the integration of the assets.
- 21st Century Fox shareholders will receive 0.2745 Disney shares for each Fox share held, giving Fox shareholders about 25% of Disney.
- 21st Century Fox will spinoff Fox Broadcasting Co., Fox Sports, Fox News, Fox Television Stations and a handful of other assets into a new company that will have revenue of $10 billion and earnings of about $2.8 billion. The 20th Century Fox lot in Century City will also remain with the spinoff Fox company.
- 21st Century Fox will continue to pursue its acquisition of the remaining 61% stake in Euro satcaster Sky that it does not already own with the intention of Disney taking it over when the Disney-Fox transaction is completed.
- Disney expects to realize $2 billion in cost savings from combining Disney and Fox’s overlapping businesses within two years of the deal’s closing.
- Disney expects the regulatory review of the acquisition to take as long as 18 months.
“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,” said Iger. “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.”
21st Century Fox chairman Rupert Murdoch said: “We are extremely proud of all that we have built at 21st Century Fox, and I firmly believe that this combination with Disney will unlock even more value for shareholders as the new Disney continues to set the pace in what is an exciting and dynamic industry. Furthermore, I’m convinced that this combination, under Bob Iger’s leadership, will be one of the greatest companies in the world. I’m grateful and encouraged that Bob has agreed to stay on, and is committed to succeeding with a combined team that is second to none.”
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Disney is betting on an ambitious purchase of a sizable chunk of 21st Century Fox, hoping that more cable networks, production studios and other properties will buoy it into the future as it dives into the direct-to-consumer streaming distribution business with sports and entertainment services planned to launch in 2018 and 2019, respectively.
To feed those new pipelines, Disney is expanding its content production infrastructure with the acquisition of 20th Century Fox, a cable group that includes FX Networks, National Geographic and 300-plus international channels, and 22 regional sports networks. Also included is Fox’s 30% stake in Hulu, 50% share of Endemol Shine Group, the Star India satellite service, and Fox’s 39% interest in Euro satellite broadcaster Sky. Disney emphasized that the transaction was not contingent on Fox closing the buyout of the remainder of Sky.
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| If federal regulators block the $52.4 billion deal Disney has committed to pay a $2.5 billion breakup fee to 21st Century Fox. |
Staying with 21st Century Fox is the Fox broadcast network and its 28 TV stations, the Fox News and Fox Business channels, and the national Fox Sports 1 and Fox Sports 2 networks and cablers Big Ten Network and Fox Deportes. Notably, the 50-acre 20th Century Fox lot in Century City will also remain with the new Fox company.
There was no immediate word from the companies on management plans for the enlarged Disney film and TV operations — a key question for thousands of employees at both companies. Nor did 21st Century Fox specify management plans for the coming spinoff company that will house the remaining Fox assets.
As Disney’s empire expands, another one will shrink. The deal, telegraphed in early November when word first surfaced the two companies had sounded each other out about a possible deal, initially shocked industry insiders. Under Rupert Murdoch, Fox has long been a swashbuckling builder. Murdoch has never shied away from attempting what once seemed impossible, from launching Fox Broadcasting Co. as the fourth national broadcast network in 1986 to acquiring the Wall Street Journal in 2007 to revving up Fox Sports as a national competitor to ESPN in 2013.
But the sale reflects rising uncertainty about the economics of traditional media outlets as digital technology forces massive change in the way people consume their news, movies and TV programs. In a world of tech giants such as Facebook, Amazon, Apple and Google with global reach, conglomerates like 21st Century Fox became small by comparison, despite the strength of its brands and content-producing expertise.
“With many pressures hitting the media industry, Fox’s potential moves make immense sense,” said media-industry analyst Michael Nathanson in a recent research note. Fox can bank on strong revenue from affiliate fees from its remaining TV assets, and use its sports rights; passionate Fox News views fan base; and big-audience broadcast events for leverage. “Paring down their asset base would not change this hand,” he said.
The decision by the Murdoch to sell comes a little more than two years after Rupert Murdoch handed control of 21st Century Fox to his sons, James and Lachlan. There’s been much speculation about 21st Century Fox CEO James Murdoch moving to a top role at Disney after the sale. Lachlan Murdoch, executive chairman, meanwhile, is expected to remain with the reconfigured 21st Century Fox. Iger said during an interview with ABC’s “Good Morning America” that he and James Murdoch will “be discussing whether there’s a role for him at this company” in the coming months.
For Disney, the acquisition provides new heft, and even gives it more control over some of the content that fuels its business.
Fox owns the studio, for example, that produces the ABC hit “Modern Family.” Now Disney will take control of the program, and benefit from syndication and other distribution of the series. The 20th Century Fox studio has the rights to make movies for Marvel characters like “X-Men” the result of deals struck before Disney purchased Marvel in 2009. Fox also controls rights to the one “Star Wars” film that is not under Disney’s aegis – the first movie in the franchise, “Star Wars: A New Hope.”
More importantly, Disney will gain access to overseas markets with Fox’s interest in Sky. 21st Century Fox has been working for months to purchase the shares of Sky it does not own, but the process has so far been tamped down by British regulators, who have expressed wariness of business operations at Fox News. With that unit remaining with the Murdochs, Disney may have its own opportunity to buy Sky in whole and gain a new perch in overseas distribution.
The deal also gives Disney majority control of Hulu, as Disney also owns a 30% stake in the streaming giant. But that sets up a potential clash over the direction of the company with Comcast and Time Warner, who together own the remaining interest in Hulu. The expectation is that Disney will try to buy out those stakes, although Comcast may not be inclined to sell given that Disney intends to launch its own OTT services to compete with cable and other MVPDs.
Disney will gain ballast in the world of TV programming, by taking on the National Geographic channels, as well as the premium drama and comedy of the FX Networks outlets that have thrived under leader John Landgraf. Disney’s current portfolio of cable networks focuses largely on kids and families, not on the viewers who are buoying operations like HBO, Showtime, AMC and FX. Many of Disney’s networks take only limited advertising. While the larger group of TV networks gives the company more say at the negotiating table with distributors it means the company can tap a broader flow of advertising dollars as well.
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The move is not without risk for seller and buyer. Can Fox make a go of things with an early-stage cable-sports operation; two cable networks that aim for a particular broad niche of people with the same political leaning; and a broadcast network that has flailed since the demise of the original “American Idol” in 2016? And will the new properties offset some of the operating troubles Disney has had with its two best-known properties, ESPN and ABC? ESPN remains the king of sports TV, but in recent years it has lost subscribers while under obligations to pay out millions in lucrative rights fees to the nation’s sports leagues. And ABC has struggled to gain a foothold in the ratings, despite the recent success of Shonda Rhimes-produced dramas like “Grey’s Anatomy” and ” How to Get Away With Murder.”
The Disney-Fox deal has prodded chatter that the remaining 21st Century Fox assets will be recombined with News Corp., the publishing side of the Murdoch empire that was split off from the entertainment and media side in 2013. Even as the ink is barely dry on the Disney agreement, already there’s speculation about the Murdochs considering other transactions with its remaining networks.
“The new Fox will draw upon the powerful live news and sports businesses of Fox, as well as the strength of our Broadcast network,” Rupert Murdoch said in a statement. “It is born out of an important lesson I’ve learned in my long career in media: namely, content and news relevant to viewers will always be valuable. We are excited by the possibilities of the new Fox, which is already a leader many times over.”