Disney In Talks to Acquire Majority of 21st Century Fox

As to "why" Fox is looking to sell: like many complicated things, there's not really one, simple answer. A significant part of the answer, though, are the Murdochs. Even though Fox is a public company, Fox is a family business insofar as they're concerned (they own about 17% of Fox, but about one-third of the preferential voting rights). Rupert Murdoch has made efforts to pass management down to his kids in recent years and they've taken over parts of the company. There's been speculation, however, that Fox is falling behind. One of its major investors unexpectedly sold off his interests recently. When the story broke that Fox was shopping itself, the reason was that Fox didn't have the scale to compete on the big stage (which reason the Murdochs publicly dismissed).

If I had to guess, a driving factor is that this is the best time for the Murdochs to cash out. They could make Fox bigger and more competitive on its own, but they'd need to bring in outside money to do that. That probably dilutes both their financial interests in and control over the company. If they sell, they lose the company but make an awful lot of money in the process. In the latter scenario, they at least get a pay-out while they still call the shots at Fox (and if they can parlay that into management positions at Disney post-merger, they may just make themselves even richer).
 
As to "why" Fox is looking to sell: like many complicated things, there's not really one, simple answer. A significant part of the answer, though, are the Murdochs. Even though Fox is a public company, Fox is a family business insofar as they're concerned (they own about 17% of Fox, but about one-third of the preferential voting rights). Rupert Murdoch has made efforts to pass management down to his kids in recent years and they've taken over parts of the company. There's been speculation, however, that Fox is falling behind. One of its major investors unexpectedly sold off his interests recently. When the story broke that Fox was shopping itself, the reason was that Fox didn't have the scale to compete on the big stage (which reason the Murdochs publicly dismissed).

If I had to guess, a driving factor is that this is the best time for the Murdochs to cash out. They could make Fox bigger and more competitive on its own, but they'd need to bring in outside money to do that. That probably dilutes both their financial interests in and control over the company. If they sell, they lose the company but make an awful lot of money in the process. In the latter scenario, they at least get a pay-out while they still call the shots at Fox (and if they can parlay that into management positions at Disney post-merger, they may just make themselves even richer).

Just feels like around now there is so much focus on content that companies are gobbling each other up and you either need to be a gobbler or a goblee ... and, as you mentioned, Fox just isn't up for growing so they figure better to cash out now rather than wait and be worth less and make less money
 


I'm little nervous for this. I mean, I know we discuss this before, but I've heard concerns saying if Disney bought 21st Century Fox Studios, Disney might lose it's identity and might put animated classics like Pinocchio, Fantasia, Dumbo, The Jungle Book, etc. in the vault for obscurity forever and never be released again. I don't know, I mean, I know Disney bought Pixar, Muppets, Marvel, and Star Wars for reasons, but this is different. I just don't want Disney get the wrong idea. I'm sorry if this is repetitive.....again.
 


I really wouldn't worry. All the brands you've mentioned above are important to the company but it's now about expanding beyond that into more adult stuff. Using Fox to do that and help push their streaming service makes the most sense for them to do that
 
That is what I have been thinking too ... like, it's easy to make fun of and have discussions about how bad Disney management is or what they should do differently, etc - but they aren't idiots ... they definitely could find other things to spend $74bn on if they really wanted to spend it - so how and why is this worth it to them.

Just because I don't see it doesn't mean it's not there

So, it's obviously not going to be nearly that much in revenue, and I have no idea how it would, but could things like Pandora make more from things like this? Does this give them any leverage in the Avatar movies that may come out in the next few decades? Just spit balling right now. I'm with you, I can't find THAT much revenue, but I'm far from a business guy too so it wouldn't shock me at all if it's out there to be made.
 
So, it's obviously not going to be nearly that much in revenue, and I have no idea how it would, but could things like Pandora make more from things like this? Does this give them any leverage in the Avatar movies that may come out in the next few decades? Just spit balling right now. I'm with you, I can't find THAT much revenue, but I'm far from a business guy too so it wouldn't shock me at all if it's out there to be made.

i am sure the fact it includes Avatar and other Marvel licenses and stuff - so things that they already have some of - makes Fox more attractive to them than other content options - but no way that is worth all that much - and for them to be paying, what 15x what they paid for Lucas films? That can't be a a big part of it
 
So, it's obviously not going to be nearly that much in revenue, and I have no idea how it would, but could things like Pandora make more from things like this? Does this give them any leverage in the Avatar movies that may come out in the next few decades? Just spit balling right now. I'm with you, I can't find THAT much revenue, but I'm far from a business guy too so it wouldn't shock me at all if it's out there to be made.

This would mean Disney no longer has to pay annual licensing fees for Pandora to stay open, and would give them full creative control over any and all Avatar sequels (except maybe the one coming out in 2021 since that one's currently being filmed I think?). It also means they get all of the revenue from any Avatar sequels, so assuming those do as well as the first one, they could make a lot of money. Not 60 billion dollars worth, but still a lot of money.
 
Expectations are that the deal will add $15Billion in revenue annually and between $4 and $5 Billion in EBITDA. That's without Disney completing the Sky acquisition. We tend to look at multiples of EBITDA to analyze these types of purchases, and while a multiple in the 12-15x range is pretty darn high for an established company, it's not unheard of, especially for an all-stock deal in a hot market. Though to provide some balance, the original estimates for Fox were more in the $40B range, a multiple of 10, which is about what Disney paid for Marvel not so long ago. It is unclear what Universal bid and how much that might have affected Disney's bid in the end.

However, Fox has several assets that are very high growth and attractive, even if we don't consider them Disney type assets. The India TV company is a very sought after property right now and would command a premium, and Fox has long been in negotiations to complete the purchase of Sky TV overseas. While that is a much more mature market, it is an asset with a well known valuation and Disney will be required, and therefore first in line, to complete the buyout. Finally, the regional sports networks, consolidated with ESPN, could help shore up a trouble spot, or at least make it more attractive as a spin off at some point. So two high margin growth pieces and a bulwark are pretty impressive for ancillary pieces.

There are questions about whether Fox's real estate will be included in the deal. If it is, Disney could be walking away with a steal. The Fox Backlot in L.A. could be worth $2-5B in a sale at current prices. Disney won't need 2 back lots, so being able to monetize .5-1 EBITDA multiple right away would make a big difference to this deal. The future value of that cash flow, reinvested, would be significant.

Finally, IP is valuable. Extremely valuable. We've seen Disney monetize Pixar, Marvel, and now Star Wars well beyond what the previous holder or creator were able to do. Fox has more mature IP, but a massive quantity of it.

Something to keep in mind is that assets are always worth something. Assets in the right hands are worth a lot more. IP assets are worth more to Disney than almost anyone else because they seem to find ways to leverage the value.
 
I can see my future...

Netflix will starting sucking more and more. Disney streaming will start up with some good deals on subscriptions. I will get pulled in by their content and go for it. Their price will then be jacked through the roof, either through straight-up subscription price increases or the offering of must-have "packages" to supplement their "basic" service. :-(
 
They wouldn't necessarily have to bait and switch on price. Depending on the amount of the combined catalogs they digitize, Disney could charge $25/month and with the amount of content available, people wouldn't bat an eye. As the rights holders, without the need to pay others for the right to run its content, Disney streaming would instantly be more profitable than Netflix, even it they stayed locked step with Netflix pricing.
 
Disney could have the UK entertainment market completely sewn up.

SKY has 23 million subscribers which Disney could make their content exclusive to over other platforms.

At the same time, Netflix is popular here so if Disney launch their streaming service but chip away at the streaming market share, no one else in the UK stands a chance

What’s tricky is that Disney sold the UK rights to ESPN to pay TV competitor BT and their deal ends in 2022 so disney could technically be competing with itself
 

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