Well, this is a big deal on the merger front. Disney is buying a bunch of 21st Century Fox’s media assets. Now, before you start in with your political conspiracies, the deal is to buy the movie and TV studio businesses, not stuff like Fox News.
All Stock Deal
What makes this deal a little crazy is that according to reports it is for $52.4 billion, but it is an all stock offering. It also comes with Disney assuming $13.7 billion in debt. That makes the cost to Disney for this takeover astronomical, but again, it’s all on paper.
The purpose of the deal seems to be let 86-year old Rupert Murdoch sort of retire. He’s built up this empire over the years, but running a big company takes a lot of commitment, and these days, Murdoch seems to care less about movies and entertainment than he does about politics. More specifically, by selling, Murdoch is cashing in his empire for billions of stock in a major U.S. company. This no doubt more about estate planning for Murdoch, than any expectation for the future of the companies.
Leaving a giant company to an heir is always a bit risky, and it seems that Murdoch doesn’t want to see his legacy passed on as some sort of kingdom. Instead, they’ll be plenty of Disney stock for his heirs to sell, and he can keep running Fox News as a separate company.
The truly interesting part of this deal would have been if Disney had also bought Fox News. Disney is about profit, and being a regular company, not about setting a specific political agenda. So, it might not have been interested in keeping Fox News as the official channel of the right wing.
There is pretty much no way this deal would get through a Democratic administration, but Republican regulators aren’t so picky about merging companies. However, with the recent AT&T and Time Warner hangup, things might not be smooth sailing. The real fireworks would come if it looks like U.S. regulators would approve the Disney merger, but not the AT&T merger.
Of course, when it comes to international giants, the real issue is European regulators who tend to be a bit more strict than their American counterparts. The companies don’t expect the deal to close for 12 to 18 months. That’s a bit like a construction company telling you your house will be built in six months, it really means 8 or 9 months. Expect it to take 18+ months for this deal to close, and then only if both parties are quick to agree to regulator demands.
It’s more likely that they’ll be fighting back, which means this deal won’t close for almost two years, or more.
In the meantime though, a potentially-combined Disney-Fox can start working on their superhero crossover movies.
As for what this mega merger means for Disney stock, the CEO is talking about $2 billion per year in cost savings. That’s a long time to wait to pay back $52 billion. That’s not the point of this acquisition though. By paying all stock, there isn’t an impact on the revenue sheet, and since media companies are judged almost exclusively by shareholders on how their movie and TV offerings do, the deal gives Iger plenty of intellectual property to milk for sequels and spin-offs to roll out each summer until he cashes in his golden retirement.
In short, this is a great deal for Murdoch and Iger, and regular shareholders will never really notice the difference… at least until the stock buybacks start.
This is not an offer to buy or sell securities. The Finance Gourmet is not a financial advisor, and does not hold himself out as one. At the time of publication, the author did not own shares in either company.