Disney's $52 Billion Fox Hunt: What Wall Street Thinks of Deal
(Bloomberg) -- Disney has finally chased down Fox, and the Street is declaring it a victory for both sides.
Walt Disney Co. agreed to a deal to acquire a large portion of media mogul Rupert Murdoch’s 21st Century Fox, in a $52.4 billion transaction for assets including Fox’s movie and TV production house, a large stake in Sky Plc and multiple pay-TV channels. Murdoch will retain control of the Fox News Channel, Fox broadcast network, and the FS1 sports network.
The move is an attempt by Disney to gain a strategic edge in a rapidly changing media environment, enabling it to attract consumers in the digital age and to compete with online streaming companies like Netflix, analysts say. The combined company would have "a vast wealth of intellectual property," control about 40 percent of the box office, and see cost savings of about $2 billion, above some analyst’s expectations.
Shares of both companies have climbed since Nov. 3, before speculation of a potential deal first surfaced, with Fox surging 36 percent and Disney gaining 10 percent. Fox shares climbed as much as 3.9 percent this morning on the announcement, while Disney rose as much as 1.8 percent.
While not all analysts agree the effort to compete in the digital video space will succeed, they see positive synergies from a consolidation of the film and television assets. Here’s a wrap of what they’re saying.
Cowen, Doug Creutz
(rates Disney market perform, price target $94; rates Fox market perform, price target $29)
"In our view, Disney is committing significant capital to the lost cause of protecting video aggregation margins."
"The genesis of this deal seems to be a perceived need by Disney to be able to successfully compete against new media content aggregators like Netflix and Amazon with Disney’s own OTT products."
"This deal could ease pressure on competing film studios. We expect that in the event of a DIS-FOX deal, Fox’s film output would likely be largely eliminated."
KeyBanc, Andy Hargreaves
(Rates Fox overweight, PT $35)
"We believe this is a mutually beneficial transaction that improves Disney’s strategic positioning and allows Fox shareholders to participate in the potential success while retaining ownership of a highly profitable domestic TV business relatively insulated from the threats to the rest of pay-TV."
Piper Jaffray, Stan Meyers
(overweight Disney, PT $120)
"We believe the transaction creates significant growth opportunities for Disney as it unlocks a vast wealth of IP, integrates vast distribution capabilities, launches and expands direct-to-consumer offerings, and extracts improved economics via scale from its counterparties..... all of which can be levered in some way to improve existing and soon-to-launch platforms while extracting better economics with counterparties."
"The combined company will soon control ~40% of box office and domestic cable affiliate fees, shaping how consumers view and consume much of their content going forward."
Wells Fargo, Marci Ryvicker
(Rates Fox outperform, PT $40; rates Disney outperform, PT $116)
"Synergies are expected to be $2 billion (vs our $1.5 billion estimate) and this transaction should be accretive to earnings (before purchase accounting) for the second fiscal year after transaction close."
"If the Regional Sports Nets (RSNs) were held, it would’ve been a huge tax burden for New Fox. Management noted that they got a premier 12.5x Ebitda multiple for the RSNs as well."
"Rupert Murdoch hasn’t thought about combining with News Corp. If it’s a consideration, it’s ’way ahead in the future’".
Citi, Jason Bazinet
"We haven’t spoken with a single investor who doesn’t like this transaction. As such, we still think there is scope for Disney’s multiple to expand if this transaction is consummated as investors begin to embrace Disney as a potential global OTT (over-the-top) platform," he wrote in a note to clients Wednesday, before the deal was confirmed.
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