Disney's Goliath Content Arm Grows Further as Fox Slims Down to Sports & News
The upcoming situation will see the mega-merger of Twenty-First Century Fox, Inc.'s (FOXA) entertainment assets with The Walt Disney Co. (DIS), resulting in a powerhouse of content creation and distribution. Alongside this, and prompted by a bevy of international regulatory conditions, FOXA must Spinoff its Sports & News segment into Fox Corp. (FOX), which we believe is a takeover target in the long-term for any larger media company looking for more broadcasting exposure.The Major Post-Situation Players...
The Walt Disney Co. (DIS, post-acquisition of FOXA): The company re-organized its business segments as per its announcement in March 2018, which became effective October 1, 2018.
Media networks – television programming, production and distribution. Consists of Disney, ESPN, Freeform branded domestic cable networks, and a 50% equity investment in A+E Television Networks (A+E), which operates a variety of cable channels including A&E, HISTORY and Lifetime;
Parks, Experiences & Consumer Products – theme parks and resorts, including Walt Disney World Resort in Florida, Disneyland Resort in California, Disneyland Paris, and a 47% interest in Hong Kong Disneyland Resort and 43% interest in Shanghai Disney Resort. A Consumer products business consists of licensing the company’s trade names, characters, visuals, literary and other intellectual properties to various manufacturers, game developers, publishers and retailers throughout the world as well as the sale of branded merchandise;
Studio Entertainment – motion picture production and distribution under the Walt Disney Pictures, Pixar, Marvel, Lucasfilm and Touchstone banners, as well as the development, production and licensing of live entertainment events on Broadway and globally (stage plays);
Direct-to-Consumer & International (DTCI) – Disney and ESPN branded international television networks and international channels. DTC businesses include the ESPN+ streaming service (launched in April 2018), and Disney+ streaming service (which the company plans to launch in late 2019). This segment also includes BAMTech LLC (75% owned since September 25, 2017), which provides streaming technology support services. The company’s equity investments include a 30% interest in Hulu and 21% effective ownership in Vice Group Holdings;
With the acquisition of FOXA, DIS will gain film and television studios, certain cable networks (including FX and Nat Geo), international television businesses, FOXA’s own 30% interest in Hulu, and proceeds from the sale of its 39% interest in Sky Plc to CMCSA (bid price of £17.28 per share of Sky, equating to a total of £11.6bn or $15.1bn), which was completed in October 2018.
Fox Corp. (FOX, Spinoff): This business will consist of Fox News, Fox Business, FS1, FS2, Big Ten Network, The Fox Network (sports programming primetime entertainment) and Fox Television stations (28 broadcast television stations in the US). The company will report in two business segments.
Cable Network Programming – production and licensing of news and sports programming content, distributed primarily through cable television systems, direct broadcast satellite operators, telecommunication companies and online video distributors primarily in the US;
Television – acquires, produces, markets and distributes broadcast network programming nationally under the FOX brand and the operation of 28 full power broadcast television stations in 17 local markets.
The Edge View...
DIS will improve its competitive positioning through wider scale post-FOXA deal;
New segmentation hints at growing focus on DTC, which is the next stage for growth;
ESPN is a potential divestiture candidate;
All approval barricades cleared for FOXA merger, but with conditional divestments in the pipeline;
“New Fox†is a bet on sports and news channels, with Cable Network Programming the growth engine;
Higher advertising revenue may be a concern, though overall leverage is below FOX's peers;
What about the Murdoch Family's involvement in this?
Twenty-First Century Fox is a media and entertainment company with operations in the following segments: Cable Network Programming, which consists of the production and licensing of programming distributed primarily through cable television systems and others; Television, which consists of the broadcasting of network programming and the operation of power broadcast television stations; Filmed Entertainment, which consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide, and the production and licensing of television programming worldwide; and Other, Corporate and Eliminations.
Walt Disney is an entertainment company. The company's segments are: Media Networks, which includes domestic cable networks, broadcast television network and domestic television stations, and television production and distribution; Parks, Experiences and Products, which includes theme parks and resorts, and consumer products operations; Studio Entertainment, which includes motion picture production and distribution, music production and distribution, and post-production services; and Direct-to-Consumer and International, which includes international television networks and channels, direct-to-consumer streaming services, and other digital content distribution platforms and services.
The Edge Group - Global Fundamental Catalyst Investing. The Edge provides investors with access to hidden corporate value from Global Special Situations using a pioneering approach to investments. Founded in 2005 by fund management and investment banking professionals to provide high quality, private equity-level research on Global Corporate Divestitures for the benefit of fundamental event-driven, growth and value-oriented investors in this difficult to track, but proven investment space.
The Edge will look to screen and analyze include Spinoffs; Reverse Morris Trusts; Squeeze Outs; Privatizations; Demutualization; Deep Discounted; Rights Issues; Rights Offering; Restructuring; Insider Purchases / Buying Change of Management / CEO Change; Deteriorating fundamentals; Post-Bankruptcy; Reorganization; Tender Offer; M&A Deals; Secondary Offering; Share Swap; Thrift Conversions; Share Buybacks; Activist; Mergers. All analyzed from a fundamental point of view.
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