Disney, Fox and The Last Jedi

12/22/2017 5:00 am EST

Focus: STRATEGIES

Jason Clark

Contributing Editor, The Prudent Speculator

In recent year, Disney (DIS) has shifted from acquiring entertainment brands and content to buying distribution platforms and other technology to help deliver programming directly to consumers, notes value investing expert Jason Clark, contributing editor to The Prudent Speculator.

Trying to picture Rupert Murdoch wearing a pair of Mickey Mouse ears is admittedly difficult. That said, he may be willing to wear the iconic head gear after Disney agreed to pay $52.4 billion to buy Mr. Murdoch’s 21st Century Fox, after Fox spins off it Fox Broadcasting network and stations, Fox News, Fox Business, FS1, FS2 and Big Ten Network to current Fox shareholders.

What Disney will acquire is the Twentieth Century Fox Film and Television studios, along with cable and international TV businesses, including Fox Searchlight Pictures, FX Networks, National Geographic Partners, Fox Sports Regional Networks, Fox Networks Group International, Star India and Fox’s interests in Hulu, Sky plc, Tata Sky and Endemol Shine Group.

Fox is the home of motion picture assets like Avatar, X-Men, Fantastic Four and Deadpool, as well as The Grand Budapest Hotel, Hidden Figures, Gone Girl, The Shape of Water and The Martian, not to mention television assets like The Americans, This Is Us, Modern Family and The Simpsons.

“The acquisition of this stellar collection of businesses from 21st Century Fox reflects the increasing consumer demand for a rich diversity of entertainment experiences that are more compelling, accessible and convenient than ever before,” said Disney Chairman and CEO Robert Bob Iger.

At the request of both 21st Century Fox and the Disney Board of Directors, Mr. Iger has agreed to continue as Chairman and Chief Executive Officer of The Walt Disney Company through the end of calendar year 2021.


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Disney investors seemed pleased by the deal (the stock gained ground), as it allows the company to accelerate its use of innovative technologies, including its BAMTECH platform, while the combined entity’s broad international footprint and unparalleled content should bolster efforts to provide a more compelling entertainment experience through its direct-to-consumer (DTC) offerings.

This transaction will enable Disney’s recently announced Disney and ESPN-branded streaming offerings, as well as Hulu, to create more appealing and engaging experiences, delivering content, entertainment and sports to consumers around the world wherever and however they want to enjoy it.

Additional rationale for the merger included, “The agreement also provides Disney the opportunity to reunite the X-Men, Fantastic Four and Deadpool with the Marvel family under one roof and create richer, more complex worlds of inter-related characters and stories.”

Disney management expects the acquisition to yield at least $2 billion in cost savings from efficiencies realized through the combination of businesses, and to be accretive to earnings before the impact of purchase accounting for the second fiscal year after the close of the transaction. Of course, the deal includes a $2.5 billion breakup fee to 21st Century Fox if the purchase is blocked by federal regulators.

We have long been fans of Disney and we are quite optimistic about the addition of the announced 21st Century Fox assets. We see the acquisition strengthening an already best-in-class content portfolio.

Also, DIS should enjoy increased production and marketing scale. Furthermore, we like that this combination affords Disney the chance to meaningfully enhance its global reach and should spur growth because of greater access to emerging market regions.

We also like that the acquisition of Fox’s sports assets should significantly enhance ESPN’s sports leadership position in the U.S., while all offerings could be leveraged DTC via BAMtech.

As we adjust our target price for Disney shares upward to $139, we also note that Disney’s latest installment of Star Wars (The Last Jedi) hit a stellar approximately $220 million in North American box office receipts and $450 million globally in its opening weekend.

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