Disney's Purchase Of Fox Confirms Content Is King
Fox
Disney's purchase of 21st Century  Fox 's studio assets brings clarity to an industry facing a change in consumer habits. Disney is paying a steep price-- Fox  shareholders will receive 0.2745 DIS shares for each FOXA share and control about 25% of the combined company--with the acquired businesses carrying an equity value of $52 billion and an enterprise value of $66 billion.
As a studio  Fox  is in a clear slump  and it is difficult to see the  Fox  content moving the needle on filmed entertainment at the new Disney. Disney is about to release The Last Jedi  a surefire hit that I believe will outshine its predecessor  The Force Awakens  as the top-selling movie in terms of all-time global box office receipts. In contrast  Fox  has been unable to produce hits recently  with none of its films featuring in the 2017 global box office top 10 (Logan is currently #11.) It is clear that Disney CEO Bob Iger is looking for quantity over quality.
That's the key factor: As Disney looks to launch its own over-the-top network in 2019  having a critical mass of popular franchises is key. After the deal closes  Disney will control movie franchises such as Avatar  X-Men  Deadpool and the Fantastic Four. Just as importantly  Disney gains control of  Fox 's TV studios  which created The Simpsons and Modern Family.
So  that's the calculus here. The deal is clearly dilutive to DIS shareholders in the short-term. Disney's press release included management's forecast that the purchase of  Fox  assets will be "accretive to earnings before the impact of purchase accounting for the second fiscal year after the close of the transaction."
When there are that many weasel words in a guidance paragraph  an analyst knows that management is not confident on the financials of the acquired company. Also  Disney's projection of "at least $2 billion" in cost savings from  the Fox deal  tellingly does not include a time-frame. I think that's a stretch. If anything  I believe Disney will likely end up spending incremental dollars  not saving them  to try and grow the Sky and Star India businesses that were languishing in the Fox corporate family.
Obviously  though  for Disney  this deal  is about assets  not earnings per share. Currently there are five major studios globally  with Lionsgate and Paramount occupying what I would classify as strong second-tier positions. After  this deal   obviously  there will only be four first-time filed entertainment providers  and Warner Brothers Universal and Sony/Columbia will have to deal with an Evil Empire that will eventually control its own version of a Death Star  a direct-to-consumer network.
So  Netflix's dominance is challenged  and I believe that Netflix is the big loser in  the Disney-Fox deal . At 17.2x analyst consensus for 2018 EPS  Disney shares are not particularly expensive. Finally clinching  the Fox deal  (actual closure is expected by June 30th  2018) will allow Disney management to shift shareholder focus from the sinking ship that is ESPN to the high-quality stable of filmed entertainment properties that are controlled by the combined entity. Content is still king.
Disney's purchase of 21st Century  [TGT] 's studio assets brings clarity to an industry facing a change in consumer habits. Disney is paying a steep price-- [TGT]  shareholders will receive 0.2745 DIS shares for each FOXA share and control about 25% of the combined company--with the acquired businesses carrying an equity value of $52 billion and an enterprise value of $66 billion.
As a studio  [TGT]  is in a clear slump  and [TGT] is difficult to see the  [TGT]  content moving the needle on filmed entertainment at the new Disney. Disney is about to release The Last Jedi  a surefire hit that I believe will outshine its predecessor  The Force Awakens  as the top-selling movie in terms of all-time global box office receipts. In contrast  [TGT]  has been unable to produce hits recently  with none of [TGT] films featuring in the 2017 global box office top 10 (Logan is currently #11.) It is clear that Disney CEO Bob Iger is looking for quantity over quality.
That's the key factor: As Disney looks to launch its own over-the-top network in 2019  having a critical mass of popular franchises is key. After the deal closes  Disney will control movie franchises such as Avatar  X-Men  Deadpool and the Fantastic Four. Just as importantly  Disney gains control of  [TGT] 's TV studios  which created The Simpsons and Modern Family.
So  that's the calculus here. The deal is clearly dilutive to DIS shareholders in the short-term. Disney's press release included management's forecast that the purchase of  Fox  assets will be "accretive to earnings before the impact of purchase accounting for the second fiscal year after the close of the transaction."
When there are that many weasel words in a guidance paragraph  an analyst knows that management is not confident on the financials of the acquired company. Also  Disney's projection of "at least $2 billion" in cost savings from  the Fox deal  tellingly does not include a time-frame. I think that's a stretch. If anything  I believe Disney will likely end up spending incremental dollars  not saving them  to try and grow the Sky and Star India businesses that were languishing in the Fox corporate family.
Obviously  though  for Disney  this deal  is about assets  not earnings per share. Currently there are five major studios globally  with Lionsgate and Paramount occupying what I would classify as strong second-tier positions. After  this deal   obviously  there will only be four first-time filed entertainment providers  and Warner Brothers Universal and Sony/Columbia will have to deal with an Evil Empire that will eventually control its own version of a Death Star  a direct-to-consumer network.
So  Netflix's dominance is challenged  and I believe that Netflix is the big loser in  the Disney-Fox deal . At 17.2x analyst consensus for 2018 EPS  Disney shares are not particularly expensive. Finally clinching  the Fox deal  (actual closure is expected by June 30th  2018) will allow Disney management to shift shareholder focus from the sinking ship that is ESPN to the high-quality stable of filmed entertainment properties that are controlled by the combined entity. Content is still king.