The Walt Disney Co. Thursday official announced a blockbuster deal to acquire assets from 21st Century Fox including the film and TV studios, cable and international businesses, for $52.4 billion in stock.
The deal is designed to give Disney the scale to deliver branded entertainment directly to consumers and has the potential to reshape the TV business as traditional media companies look to take on the challenges posed by digital powerhouses including Netflix, Amazon, Facebook, Google and Apple, who are spending billions on programming.
Related: Disney Ramps Up Direct-to-Consumer Stockpile With Fox Deal
Disney has already announced plans to launch a new ESPN branded direct-to-consumer product in 2018 and a Disney branded product in 2019.
Before the sale, Fox will spin off the Fox Broadcast Network, its owned stations, Fox News Channel, Fox Business Network, FS1, FS2 and the Big Ten Network to its shareholders in an effort to hold down taxes due on the deal.
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The deal, while expected in recent days, represents a surprising downsizing for Rupert Murdoch and his family, who have been empire builders throughout their careers.
“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 CEO Bob Iger.
“We’re honored and grateful that Rupert Murdoch has entrusted us with the future of businesses he spent a lifetime building, and we’re excited about this extraordinary opportunity to significantly increase our portfolio of well-loved franchises and branded content to greatly enhance our growing direct-to-consumer offerings. The deal will also substantially expand our international reach, allowing us to offer world-class storytelling and innovative distribution platforms to more consumers in key markets around the world,” Iger said.
Related: Iger Says Fox Will Help Accelerate Direct-to-Consumer Plans
At the request of both 21st Century Fox and the Disney Board of Directors, Iger has agreed to continue as chairman and CEO of Disney through the end of calendar year 2021.
“The new Fox will draw upon the powerful live news and sports businesses of Fox, as well as the strength of our Broadcast Network," said Rupert Murdoch. "It is born out of an important lesson I’ve learned in my long career in media: namely, content and news relevant to viewers will always be valuable. We are excited by the possibilities of the new Fox, which is already a leader many times over.”
As part of the definitive agreement with Disney announced today, 21st Century Fox shareholders will receive 0.2745 Disney shares for each 21st Century Fox share in the merger. The deal will give 21st Century Fox shareholders a 25% stock in Disney.
Fox said the spin-off transaction will be taxable to 21st Century Fox, but not to its shareholders. The new Fox will receive a step-up in its tax basis commensurate with the amount of the corporate tax relating to the spin-off that will generate annual cash tax savings over the next 15 years.
"As a result of the transformative transactions proposed today, we are paving the way for the new Fox, as well as a better Disney, to chart a course across a broad frontier of opportunity,” Murdoch said. “We have always made a commitment to deliver more choices for customers; provide great storytelling, objective news, challenging opinion and compelling sports. Through today's announcements we are proud to recommit to that promise and enable our shareholders to benefit for years to come through ownership of two of the world's most iconic, relevant, and dynamic media companies. They will each continue to be leaders in creating the very best experiences for consumers.”
Disney said the deal will accelerate Disney ability to use technology, including its billion-dollar investment in BAMTech, to connect its entertainment content with consumers.
The deal brings together some of the entertainment industry’s most formidable franchises, adding Fox properties such as Avatar, X-Men, Fantastic Four, Deadpool, The Simpsons, This is Us and Modern Family to Disney’s animated properties, Star Wars and the rest of the Marvel universe.
Disney will enlarge its cable portfolio, adding FX Networks, National Geographic Partners and Fox Sports Regional Networks. New international businesses coming to Disney in the deal include the Fox Networks Group International and Star India.
Disney also gets Fox’s stakes in Hulu, Sky plc, Tata Sky and the Endemol Shine Group.
Prior to the close of the transaction, it is anticipated that 21st Century Fox will seek to complete its planned acquisition of the 61% of Sky it doesn’t already own, the companies said.
The Boards of Directors of Disney and 21st Century Fox have approved the transaction, which is subject to shareholder approval by 21st Century Fox and Disney shareholders, clearance under the Hart-Scott-Rodino Antitrust Improvements Act, a number of other non-United States merger and other regulatory reviews, and other customary closing conditions.
Related: Report: Disney, Fox Close in on Deal
Media consolidation critic Public Knowledge was quick to call for a tough government review of the Disney-Fox deal, which it said would combine must-have programming, notably sports, and which it also said would lead to higher prices for video content.
“Antitrust authorities should thoroughly examine the incentives and power a combined Disney-Fox may have to harm consumers and competition," said PK senior policy counsel Phillip Berenbroick.
"Disney’s acquisition of Fox’s regional sports networks, which carry thousands of local NBA, MLB, and NHL games, as well as college athletics, is also a cause for concern," Berenbroick added. "Disney’s ESPN-family of networks is already the most valuable, and most expensive, sports programming network in the cable bundle. The addition of Fox’s regional sports programming may significantly increase Disney’s bargaining power over local cable providers because consumers demand access to their local professional and college athletics.
"The combination of these assets may also give Disney the power to negotiate even higher prices and more preferential treatment for the rest of its video programming, as well as unprecedented control over both national and local televised sports." he said.