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Chart of the Day / Disney Acquires 21st Century Fox in $71 Billion Deal

Disney Acquires 21st Century Fox in $71 Billion Deal

March 26, 2019

It’s official: The Walt Disney Company finally closed a $71 million deal with 21stCentury Fox (FOXA) to further enlarge its media empire. The Disney-Fox deal, long in the making, will see 21stCentury Fox transfer all its major entertainment assets to Disney, combining some of Hollywood’s best-known studios, characters and franchises. The deal comes at a time when the world’s largest media companies look to get bigger to compete in a world where more shows and movies are being consumed online.

Disney (DIS) will now control Fox’s movie and television production studios, as well as its FX cable network, the Fox Searchlight label, and National Geographic properties, according to a Wall Street Journal reportfrom March 21. Disney will also assume Fox’s 30% ownership interest in Hulu, giving Disney 60% of the streaming service. (Comcast Corp. (CMCSA) owns 30% of Hulu; Warner Media holds 10%).

The Disney-Fox deal was concluded following legal approvals obtained in several foreign markets. After being quickly approved by the U.S. Justice Department last year, the deal was slowed by US President Donald Trump’s partial government shutdown earlier this year.

Disney is no stranger to acquisition and its recent success reflects that fact. For a combined $15.4 billion, the company has purchased Pixar Animation Studios, Marvel Entertainment, and Lucas Film Ltd. The acquisitions have put lucrative properties such as Toy Story, The Avengers, and Star Warsunder the same roof. This will allow Disney to exploit a roster of popular fictional characters at the box office, on toy shelves, and at theme parks, the WSJ reported.

While the Disney-Fox deal is now official, the arduous task of combining two massive organizations has just begun.

“I wish I could tell you that the hardest part is behind us; that closing the deal was the finish line, rather than just the next milestone,” Disney Chief Executive Bob Iger said in an emailto the Los Angeles Times.

“What lies ahead is the challenging work of uniting our businesses to create a dynamic, global entertainment company with the content, the platforms, and the reach to deliver industry-defining experiences … for generations to come.”

More challenges and pitfalls lie ahead, as the prospect of people losing their jobs in the merger is likely. That’s because Disney is absorbing a business much like its own, creating hundreds of duplicated positions in the movie and TV studios and cable channels, including in administration, sales, and distribution. According to the same LA Timesreport, a small number of layoffs could begin as early as late March, but most of the cuts will not occur for weeks, or even months, as Disney works to consolidate following the Disney-Fox deal.

Walt Disney Corporation (DIS)

As far as some of deal’s optics are concerned, analysts report that Disney took on about $36 billion in debt to finance the cash-and-stock transaction. That load ratcheted up Disney’s debt to a higher-than-usual level, said Tuna Amobi, media industry analyst at CFRA. “I would expect them to be working to bring down that leverage,” he said.

Initially, Disney aimed to earn about $20 billion from the sale of Fox’s 22 regional sports channels, including Prime Ticket and Fox Sports West in Los Angeles. However, Disney has since walked back its expectations because a fierce bidding war over the sports channels failed to materialize.

Although Disney at first wanted to keep the regional networks, U.S. antitrust regulators rejected that portion of the deal because Disney already owns ESPN. The government has given Disney 90 days to sell the sports channels, which Major League Baseball is interested in buying.

A day after the deal, Disney shares were virtually unchanged on March 20, and were down just 1 cent to $109.99. Fox’s A shares closed down $1.72, or 4.3%, to $38.62.