Disney's Fox Raid Is Reminder of Disney's Enduring Force
(Bloomberg Gadfly) -- Netflix Inc.'s rising popularity provoked Walt Disney Co.'s Bob Iger to seize $52 billion of TV and film assets from its rival 21st Century Fox Inc. But the unforeseen megadeal also serves as a reminder that Disney still has at least one big advantage over Netflix: the financial heft and prestige to do whatever it takes to endure an industry upheaval.
Disney agreed Thursday morning to pay Fox shareholders 0.2745 Disney shares for each Fox share. In return, it will gain the 20th Century Fox and Fox Searchlight film studios, Fox's television production, FX and National Geographic networks and Fox's regional sports networks, along with valuable stakes in international assets such as pay-TV provider Sky Plc and a bump to majority ownership of Hulu. This is subject to regulatory approval, of course, which we know will be a long road as the Justice Department fights AT&T Inc.'s effort to consolidate power in the media and communications space with its Time Warner Inc. takeover.
As it stands now, Iger's legacy would be his brilliant studio acquisitions that helped secure Disney's dominance in the movie box office in recent years -- and likely for years to come. But a hastening of TV viewers cutting the cable cord and switching to streaming services such as Netflix threaten to overshadow some of his work as he heads for retirement in 2021 (extended Thursday from the latest deadline of 2019). This has driven Iger to make his biggest and riskiest purchase yet.
The fact that he was able to do it without spending a dime or taking on a boatload of debt the way other acquirers in and outside the industry have done speaks to Disney's prowess. Fox shareholders will be more than satisfied with a 25 percent stake in the combined company, while also receiving shares in the spinoff of Fox News, Fox's other sports networks and the broadcasting network and stations. The Murdoch moguls will be left with a less than 5 percent stake in Disney, according to reports, without board representation.
Disney hasn't been safe from the Netflix effect, with Nielsen forecasting a 2.2 percent drop in total subscribers -- traditional and digital -- during December for its networks. Iger is fighting back by developing two streaming products, one for ESPN and another for Pixar and Disney movies, while no longer supplying that content to Netflix. With Disney upping its ownership of Hulu by gaining Fox's stake, it remains to be seen whether Disney will take full control of the service next or whether minority owner Comcast Corp. will try to force the sale of the asset.
Throughout the broader industry dealmaking and merger chatter this year, alongside the growth in rival streaming services from the likes of AT&T and Dish Network Corp., Netflix has managed to keep up its momentum, with its stock rising 52 percent this year. But as Shira Ovide has reminded us time and again, Netflix is one giant cash bonfire.
There's no guarantee that this deal will be another win for Iger, or that it will even muster regulatory approval in its current form. It's complex, and Fox's TV networks are facing the same challenges as Disney's own, while Fox's film studios need work. But the Magic Kingdom has marked its territory.
--Elaine He provided the "Fox in the Mouse House" graphic
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Tara Lachapelle is a Bloomberg Gadfly columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.
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