The Walt Disney Company indicated in December 2017 that it would obtain 21 st Century Fox for an original price of $52.4 billion in what was the biggest deal in the entertainment industry. At the time, the value for the deal was estimated to be $66.1 billion which was inclusive of a $13.7 billion Fox debt. However, the estimated value of the deal went up to reach $69 billion. The transaction for all the stocks was to include the Twentieth Century Fox TV studios and movies, its international assets and most of its cable networks. The $71.3 billion mega-acquisition of the company was made official in March. The deal was associated with high-profile names such as actor and hip-hop artist Ice Cube and the founder of Alex and Ani jewelry Carolyn Rafaelian. It marks the first time that a movie studio has stopped to exist as an autonomous entity from the decay of the Metro-Goldwyn-Mayer Studios Inc. in the 1980s thus reducing the number of big Hollywood movie studios from six to five. They included Paramount, Disney, Universal, Sony, and Warner Bros. The merger between Fox and Disney was expected to attract some synergies.
The Expected Synergy on the Merger
The merger of Disney and Fox means that Disney would gain ownership of 21st Century Fox’s film development companies (Feldman, 2019) . The merger expected several synergies which include the advantages that result from the integration of the two companies that would otherwise not be possible to if they operate individually. The three synergies that result from the merger between Disney and Fox include financial, revenue, and cost synergies.
Delegate your assignment to our experts and they will do the rest.
Cost Synergy
Cost synergies include the opportunity that results from acquisition for the companies’ combined with decreasing costs more than the two companies would have been able to do individually. An analysis of the $52 billion acquisition of vital media assets in Twenty-First Century Fox indicates that Disney expects approximately $2 billion in cost synergies by the year 2021. Most of the amount in cost synergy was expected to be as a result of cost savings. It was expected that a lot of people would lose their jobs once 21 st Century Fox and Disney finally merge. The deal appeared to be imminent after Comcast let go of the bidding war. What is certain is that the deal would result in thousands of individuals losing their jobs. Reports indicated that 5,000 people would lose their jobs including 1,700 from Disney and 2,300 from Fox. Executives within the two companies were also expected to be shuffled around which would result in more resignations, retirements, and layoffs. It means that the cost savings initiatives would result in job cuts, and the number was expected to increase to 10,000 people to reduce the cost past the $2 billion marks (Hayes, 2019) . The company also expected to attract costs that relate to regulatory scrutiny both in the United States and also internationally. However, the cost of the merger is critical because it ensures the production of high-quality products for consumers around the world.
Revenue Synergy
Revenue synergy happens during an acquisition where the combined company generates more sales than what the two companies would get if they operated separately. After the merger with Fox, Disney was expected to demand a 50% share at the box office. Also, Comcast has a massive cable TV product that has around 22 million subscribers. However, it is only able to reach one-third of the nation. Cord-cutting has also resulted in stagnation, and thus Comcast has constantly been looking for ways of competing with streamers. Analysis indicated that the inclusion of Fox’s company content would encourage it to become more competitive. Also, Disney’s ESPN Plus Streaming service plus Fox’s regional sports networks were expected to ensure that the company gets rights to local games.
Along with having the chance to bring more content into the Marvel Cinematic Universe and unifying the rights, Disney was expecting to get Fox’s distribution rights that are linked to the first Star Wars film, further increasing the revenues to the merger. It was also expected that Disney would benefit from the inclusion of Fox’s assets in its portfolio which means that its position in the market was expected to solidify ensuring that it becomes a market giant (Haggerty, 2018). It is also expected that in future, other media companies would follow Disney’s footprint with new strategic strategies and growth in size to improve their revenues and maintain their competitiveness considering that two of the biggest companies in the business have merged.
Financial synergy
The last synergy expected from the merger is the financial synergy (Gaughan, 2007). The combining companies were expected to result in financial benefits of the stand-alone company, which would be more than the companies would get when operating individually. An analysis of the merger between the two companies indicated that the financial synergy would include a cash pay-out to Disney worth $35.7 billion and a new share issue of approximately 343 million. It means that 21 st Century Fox was expected to gain 19% stake in Disney that is on a pro forma basis. Fox’s shareholders expected to get some of Disney’s shares equalling $38 in value (Gaughan, 2007). Fox’s shareholders were expected to receive an exchange share ration of 0.3324 of Disney’s common stock when its average stock price closing is more than $114.32 and 0.4063 shares from Disney if its average stock price at closing is lower than $93.53 (Gaughan, 2007).
Disney was also expected to assume approximately $13.8 billion of 21 st Century Fox’s net debt. It means that the acquisition price has a total equity value of $71.3 billion and a transaction value of around $85.1 billion (Gaughan, 2007). The merger results in more revenue to the company because it would increase Disney’s international presence in addition to expanding distribution and content for the direct-to-consumer (DTC) products. It also results in increased competitiveness of the company.
Conclusion
It is evident that the merger between Fox and Disney is the biggest in the entertainment industry. The merger was expected to result in different synergies that include cost synergies where Disney expects approximately $2 billion in cost synergies by the year 2021. The company also expected to attract costs that relate to regulatory scrutiny both in the United States and also internationally. It is also expected to result in revenue synergy where Disney was expected to demand a 50% share at the box office. It was also expected that Disney would benefit from the inclusion of Fox’s assets in its portfolio which means that its position in the market was expected to solidify ensuring that it becomes a market giant. Finally, the merger is expected to result in
the financial synergy including a cash pay-out to Disney worth $35.7 billion and a new share issue of approximately 343 million. It means that 21 st Century Fox was expected to gain 19% stake in Disney that is on a pro forma basis. Disney was also expected to assume approximately $13.8 billion of 21 st Century Fox’s net debt. It means that the acquisition price has a total equity value of $71.3 billion and a transaction value of around $85.1 billion.
References
Feldman, D. (2019, 03 28). The Disney-Fox Merger: What's The Trickle-Down Effect For Consumers? Retrieved from Forbes: https://www.forbes.com/sites/danafeldman/2019/03/28/the-disney-fox-merger-whats-the-trickle-down-effect-for-consumers/#66d995a91efd
Gaughan, P. A. (2007). Mergers, Acquisitions, and Corporate Restructurings. John Wiley & Sons.
Haggerty, R. (2018, 11 13). Disney and Fox: How Bankers Merge Giants . Retrieved from Medium: https://medium.com/banking-at-michigan/disney-and-fox-how-bankers-merge-giants-338b68d90f0d
Hayes, D. (2019, 03 19). Disney Closes Fox Deal, Kicking Off New Era For Hollywood – Update . Retrieved from Penske Business Media, LLC: https://deadline.com/2019/03/disney-fox-deal-per-share-value-set-bob-iger-hails-historic-moment-1202578625/
