Neil Macker: Disney announced on Thursday that it would acquire the entertainment assets of Fox for US$52 billion in stock and the assumption of US$14 billion in net debt. We expect the deal to receive regulatory approval, but do expect the deal to take at least up to 18 months to close. We are maintaining our wide-moat ratings for both Fox and Disney.
We are raising our fair value estimate for Fox to US$43 from US$35 to account for the value of the Disney shares and the value of the stub company. We are maintaining our US$130 fair value estimate for Disney, as we believe the cost of obtaining the Fox entertainment assets will be offset by the revenue generated and the cost savings from the deal.
Disney is purchasing the Fox television and movie studios along with the cable entertainment networks such as FX, its 30% stake in Hulu, along with the international assets including a 40% stake in SKY. The remaining assets at Fox will be the broadcast network, Fox News, FS1 and the Big 10 Network.
From the Disney standpoint, we believe the deal helps on many fronts as the firm begins to combat new entrants into the field. Fox's television studio is considerably stronger than Disney's. The deep film and movie library at Fox will help the company as it plans to launch it's SVOD (subscription video on demand) service in 2019.
For Fox, the markets are making a bet that live sports and news will be the differentiator at pay TV. With this deal, the company is heavily focused on not only live sports, but Fox News as well.