The principal goal of any business is to develop and maintain an edge on the market. With the fast increasing number of firms offering similar products, having effective strategies to compete is entirely necessary. Beside extensive advisements, discounted prices, and quality products, a company, can merge with an existing one to enhance its reach and expand its market. In the recent past, the merger between Disney and 21 st Century Fox firms occurred. In this case, 21 st Century Fox’s assets were bought by Disney for a whopping $52.4 billion in stock or $66.1 billion after assuming debt. Kerrigan (2012) indicates that the issuance of equity improves the acquirer’s debt rating lowering imminent cost of debt financings. Detailed below is an evaluation of this merger, its successes, together with its failures.
Successes of the Merger
The merger expanded the market of the two firms into new markets. Initially, Disney dominated the U.S. market alone. Like any other business, the firm had the goal of expanding to other parts around the world. Nonetheless, the merger with 21 st Century Fox has enabled it to develop its dominance to other areas such as India and Europe. The company was able to effectively utilize the Sky based in Europe and Star India to get hold of markets in those regions. Therefore, the merger was essential in enhancing the Disney market to other parts of the world apart from the U.S.
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The merger increased the number of resources essential for their business. Disney was able to acquire Intellectual properties that 21 st Century Fox Company owned and used it to enhance its streaming services all over the world. Consequently, the merger is competing favorably with giants such as Netflix. On the other hand, 21 st Century Fox has enjoyed the services of Disney monetizing these properties. Consequently, the two firms in this merger have been able to assist each other utilize their resources to the fullest.
Furthermore, the merger has been able to compete and outdo other smaller entertainment companies in the U.S. and all over the world. They are now competing with giants such as Netflix. Initially, Netflix was way too dominant for the two companies due to its enhanced technologies and experience in the entertainment industry. Similarly, the merger expanded the content available for sale to the consumer base. The Disney Company has used a significant amount of content acquired from 21 st Century Fox to materialize its subscription VOD services. In this case, it has achieved part of its plan to have SVOD services such as ESPN plus and Hulu. Therefore, the merger has enabled it to achieve this goal (Rani et al., 2015). Consequently, the enhanced level of content has attracted and been able to maintain a massive client base.
Failures of the Merger
First, there is a significantly lower control and motivation among workers after the merger. Workers typically work with the goals of their firm in mind. For instance, Disney workers had the goals and objectives of the company in mind (Angwin et al., 2014). After merging, employees have a feeling that they are a thin part of the massive multinational; hence, they are less motivated to work. Also, it may take long before the human resources in Disney and 21 st Century Fox gain the necessary synergy.
The two companies, Disney and 21 st Century Fox, have failed to hold their initial client base due to change in content and prices. They are trying to assume in the international standard and needs, but they are unable to continue with what they have been known for all this while. For instance, Disney is now drifting towards making films that would be sold in the entire world. However, it was known for kids’ cartoons and comedies, which made it thrive in the U.S. On the other hand, the 21 st Century has ceased to offer mid-budgeted comedies and dramas for its fans. Consequently, the two have lost customers who loved their programs in their backyard despite gaining in the international market.
Failure by Disney to purchase the entire 21 st Century Fox firm has made some of the competitors stronger. Disney acquired FX network, National Geographic, Fox Searchlight, Blue sky, and many others, but failed to acquire FX sports. The move strengthened ESPN competitors since it is perceived that the merger did not consider the lovers of sports. In this case, the company will find it extremely hard to achieve the top position in sporting events and broadcasting (Uhlenbruck et al., 2016). Given the massive number of sports fans in the world, this is a significant blow to the merger. Moreover, New Fox would shed all of its working capital intensive businesses. Then also, the merger has a significant emphasis on SVOD and live sport, which is in line with the growing demand for video game and e-sports. In this case, they are addressing the specific needs of the entertainment industry client base (Firk et al., 2018). Nevertheless, they may be rendered irrelevant soon due to failure to address the needs of their customers. This is likely to put them in a disadvantaged position when another company comes up and focuses on video games and e-sports.
Conclusion
Merging is one of the ways a company can use to enhance their market and dominance. As a result, they achieve their economic goals. The merger between Disney and 21 st Century was aimed at forming one major entertainment firm that would compete favorably with the likes of Netflix. The merger has both successes and failures. For instance, it has expanded its market in the world; the merger has provided essential resources necessary in the industry available for use, it has also developed its content and overpowered smaller local firms in their backyards. On the other hand, the merger has failed to address the specific needs of all clients, strengthened their competitors, and adversely affected the motivation of their employees.
References
Angwin, D. N., Mellahi, K., Gomes, E., & Peter, E. (2014). How communication approaches impact mergers and acquisitions outcomes . The International Journal of Human Resource Management, 27(20), 2370–2397. Retrieved from https://sci-hub.tw/https://www.tandfonline.com/doi/full/10.1080/09585192.2014.985330
Firk, S., Maybuechen, F., Oehmichen, J., & Wolff, M. (2018). Value-based Management and Merger & Acquisition Return : A Multi-level Contingency Model. European Accounting Review, 1–32. Retrieved from https://sci-hub.tw/https://www.tandfonline.com/doi/abs/10.1080/09638180.2018.1492947
Kerrigan, M. (2012). Top Ten Issues in M&A Transactions. Retrieved from http://www.mbbp.com/news/issues-in-ma-transactions
Rani, N., Yadav, S. S., & Jain, P. K. (2015). Impact of Mergers and Acquisitions on Shareholders’ Wealth in the Short Run: An Event Study Approach. Vikalpa, 40(3), 293–312. Retrieved from https://sci-hub.tw/https://journals.sagepub.com/doi/full/10.1177/0256090915600842
Uhlenbruck, K., Hughes-Morgan, M., Hitt, M. A., Ferrier, W. J., & Brymer, R. (2016). Rivals’ reactions to mergers and acquisitions. Strategic Organization, 15(1), 40–66. Retrieved from https://sci-hub.tw/https://journals.sagepub.com/doi/full/10.1177/1476127016630526
