News Disney and Fox come to terms -- announcement soon; huge IP acquisition

[AnotherDayAnotherDollar]

Disney wanted Sky, but they didn't want to overpay for it. It would have been good for them to get Sky at a decent price. Comcast overpaid because they needed it more. It works out for Disney as well as they will get more for the 39% ownership.

Also, these are foreign regulators that need to approve the Fox acquisition, if required:

European Union
Australia
Brazil
Canada
China
India
Israel
Japan
Mexico
Russian Federation
South Africa
South Korea
Taiwan
Turkey
United Kingdom

 

[mab7689]

Disney wanted Sky, but they didn't want to overpay for it. It would have been good for them to get Sky at a decent price. Comcast overpaid because they needed it more. It works out for Disney as well as they will get more for the 39% ownership.

Also, these are foreign regulators that need to approve the Fox acquisition, if required:

European Union
Australia
Brazil
Canada
China
India
Israel
Japan
Mexico
Russian Federation
South Africa
South Korea
Taiwan
Turkey
United Kingdom

Great information thanks. I've been looking for what the 15 were.

 

[Twilight_Roxas]

14 since India approved.

 

[biggy H]

Well the shareholders could always throw a spanner in the works and reject the offer... Not sure how many % need to vote yes but Fox holds 39% so if its a simple 50+% then it doesn't take many to not get it approved.

 

[bartholomr4]

Well the shareholders could always throw a spanner in the works and reject the offer... Not sure how many % need to vote yes but Fox holds 39% so if its a simple 50+% then it doesn't take many to not get it approved.

From the Wall Street Journal:

The Comcast bid, closely overseen by Chief Executive Brian Roberts, is valued at $48.6 billion including debt, giving a multiple of 15.5 times Sky’s adjusted earnings before interest, taxes, depreciation and amortization for the year through June. That compares with multiples of 13.2 times for AT&T’s recently completed acquisition of Time Warner. (Vs Comcast current value to earnings Multiple of 7.9)

Even with its rich bid, Comcast still has to convince shareholders—no foregone conclusion. Fox owns 39% of Sky and said late Saturday it was “considering its options” regarding the stake. It has every interest in tendering it, given Disney’s need to reduce the debt pile associated with its Fox bid and the price Comcast is willing to pay.

But Disney might want to use the stake as a bargaining chip to get control of Comcast’s 30% stake in streaming service Hulu, of which it will own 60% after the Fox deal. To complete the Sky deal, Comcast needs more than 50% of Sky shareholders to tender their shares; without Disney’s cooperation, it could end up in a battle with hedge funds such as Elliott Management that now own a big chunk of Sky.

Assuming it does get the deal over the line, Comcast will at a stroke gain a chunk of international earnings: Sky would contribute about 17% of the companies’ combined sales. But diversification alone cannot justify the price offered. Sky needs to become the front line in a much more ambitious, Netflix-style global streaming offensive for the deal to add up. This is risky, but the worrying implication of this weekend’s sky-high bidding is that in a fast-changing media landscape Mr. Roberts sees no other choice.

 

[seascape]

Once Comcast buys all of Sky and assues its bedt Bloomberg reports Comc

Well the shareholders could always throw a spanner in the works and reject the offer... Not sure how many % need to vote yes but Fox holds 39% so if its a simple 50+% then it doesn't take many to not get it approved.

Disney would be crazy not to take Comcasts 15 billion for the 39%

 

[Indy_UK]

So $15 billion for the 39% of SKY and about $20 billion for the Regional sports. That's a lot of change there getting back from the $71 billion on Fox.

Just a case of the the rest that Disney has acquired being worth $36 billion.

I think there will be a deal for SKY and Hulu between the companies

 

[BrianLo]

So firstly, you have a lot of the 'wrong end of the stick'
1) The erosion of TV viewership isn't nearly as dramatic as the US, plus Disney would of had ownership of NOWTV a streaming service platform which they could of killed Disneys own Disney Life streaming service that has already launched in Europe. Sky has a lot of distribution rights with US networks, i.e. Getting all HBO content, which is done for a mature audience first. Plus Sky's biggest points are News and Sports, on the TV side. We have said it plenty of times Disney needs to cater for males and move from everying being sanitized, Disney needs to move to produce a Star Wars and Marvel life action shows with the production value of Game of Thrones, WestWorld, Britannia(a SKY original), TIn Star(another Sky original). Which Disney is incapable of producing at that level see Agents of Shield and Inhumans.
2)Disney will still buyback stock a simple google search shows nothing in the news of any cancellation.
3)Well we all should remember that Disney Lifestyle/Play/Touch streaming service is going to eat Disneys' lunch money. And when that happens get ready for more entertainment cuts heading to your local Disney Park.
5)Disney also doesn't want Blue Sky Animation they view it as a ToonStudios situation and want to offload that.
6)Hulu is only available in US makes it pretty much a worthless commodity in the whole distribution race.

Overall the UK takeover panel should of rejected all takeovers.

All of this take reflects my own personal bias, naturally. I'm particularly not interested in Sky, because a 40 billion dollar takeover will yield very little of anything that I'd ever see come to Canada.

I'm not saying Sky offers nothing in content (although its too biggest offerings were, again, HBO licensing agreements for the UK). I'm saying, if Disney was after content, Sky was not worth 40 48.6 billion dollars. Sky has barely any original content for the size of transaction. Iger seems to want to steer Disney away from licensing.

Fx produces more original content, of the type you list. Even Hulu produces more original content. Outside of Netflix/HBO - Dis has picked up about as many Emmy winners from this transaction as they can. They actually now have quite a few strong adult appealing shows. The Americans, American Crime Story, American Horror Story, Legion, The Handmaid's Tale, Atlanta, etc.

So the only real inroads Sky offered was a pre-existing streaming platform. I acknowledge that is a loss. However, if Disney enters the market with their own content, a de novo platform grown from the ground up instead of one purchased, seems to be a better bet to grow the company.

Dis cancelled 20 billion of stock buybacks in June with the larger offer.

Again, the implication is Disney needs to trade away resources. They don't need to trade anything. They can sell them to the highest bidder. There is very little Comcast has that Disney actually needs. People keep making a laundry list of items to trade, when the item that will be traded is money. Even if two resources are traded for money at the same time. Unless Comcast is so broke they cannot actually afford the remaining 39%, but the problem is Disney holds far more resources valuable to Comcast and others.

 

[bartholomr4]

So $15 billion for the 39% of SKY and about $20 billion for the Regional sports. That's a lot of change there getting back from the $71 billion on Fox.

Just a case of the the rest that Disney has acquired being worth $36 billion.

I think there will be a deal for SKY and Hulu between the companies

Great point (You have to add in 21CF debt ... so the value is closer to 55 billion... FYI)

 

[bartholomr4]

I think they will get done separately because otherwise I think they risk upsetting U.K. regulators. I had not previously considered that dynamic when discussing the inevitable horse trading. But otherwise I agree with your thoughts.

It will be interesting to see if Disney invites AT&T, Netflix, Amazon etc to bid on any of the “surplus assets”

 

[AnotherDayAnotherDollar]

https://www.cnbc.com/2018/09/24/sky-to-accept-comcast-offer-immediately.html

It's unclear when these discussions will begin. While Disney expects to close on its Fox deal in 2019, talks to sell the Hulu and Sky stakes could start at any time.

I guess I was wrong and an asset swap trade could happen before Disney closes the Fox deal.

 

[Indy_UK]

I hope so then, Disney can really focus on getting Hulu outside of the US.

While I believe the future is streaming, Hulu can't be valued anywhere near SKY per %.

Are AT&T likely to see the last 10% to Disney?

 

[bartholomr4]

Within AT&T's 10K Prospectus, they listed their value of the 30% they own now around 2.1 Billion. It gets a little complex here but because they are buying another 30% from Fox, they have to add a "Control Premium" (because they will own more than 50% and are in control) of another 1.2 Billion. So the combined 60% now they value it at 6.4 Billion for the 60%. This would value the total firm at around $11 Billion. It is safe to say, the 30% of Hulu owned by Comcast is worth at least 3.3 Billion (and AT&T's 10% at 1.1 Billion).

Disney has their 30% on their books at about $130 Million, which has been adjusted by losses taken by Hulu and their original investment. The difference in all of this would be treated as a "Good Will" premium (accounting mumbo-jumbo).

Whether or not Comcast and AT&T will/could try to negotiate a higher price (for Hulu) is the question on the table. If you sold or spun off Hulu in the market, how would the market price it? Here is where you get to horse trading to include a guarantee to keep NBCU content on Hulu for "X" years and or Disney Fox content on Sky for "X" years, and potentially, a relaxing of the Marvel contract.

To your point, there isn't a 1 to 1 value of 30% of Hulu for 39% of Sky....

Why would Comcast not want to deal now? One answer would be if Disney Fox retain their 39%, that reduces the amount of money Comcast has to borrow by $15 Billion. (and in effect reduces Comcast Annual Interest expense by about 0.9 billion a year "give or take") which they can declare as income and pay out to their shareholders.

Why would Disney not want to deal now? A number of reasons.... 1) Hulu is loosing money. Disney doesn't loose any control, but can spread the losses onto Comcast. 2) It may want to avoid closing any sale until it has full control of 21CF (i.e. the cash would go to 21CF, not Disney, until the deal closes) 3) It may want to sell off other "surplus assets" to other parties (other than Comcast) Like AT&T, NetFlix, Google, Apple, etc....

I wish I knew more about when all of the regulatory approvals will arrive and when the 21CF deal will close. That would help some....

 

[Rodan75]

Interesting article with some additional perspectives on the SKY deal:

https://deadline.com/2018/09/comcas...all-street-weighs-sky-outcome-fox-1202469933/

 

[AnotherDayAnotherDollar]

Within AT&T's 10K Prospectus, they listed their value of the 30% they own now around 2.1 Billion. It gets a little complex here but because they are buying another 30% from Fox, they have to add a "Control Premium" (because they will own more than 50% and are in control) of another 1.2 Billion. So the combined 60% now they value it at 6.4 Billion for the 60%. This would value the total firm at around $11 Billion. It is safe to say, the 30% of Hulu owned by Comcast is worth at least 3.3 Billion (and AT&T's 10% at 1.1 Billion).

Disney has their 30% on their books at about $130 Million, which has been adjusted by losses taken by Hulu and their original investment. The difference in all of this would be treated as a "Good Will" premium (accounting mumbo-jumbo).

Whether or not Comcast and AT&T will/could try to negotiate a higher price (for Hulu) is the question on the table. If you sold or spun off Hulu in the market, how would the market price it? Here is where you get to horse trading to include a guarantee to keep NBCU content on Hulu for "X" years and or Disney Fox content on Sky for "X" years, and potentially, a relaxing of the Marvel contract.

To your point, there isn't a 1 to 1 value of 30% of Hulu for 39% of Sky....

Why would Comcast not want to deal now? One answer would be if Disney Fox retain their 39%, that reduces the amount of money Comcast has to borrow by $15 Billion. (and in effect reduces Comcast Annual Interest expense by about 0.9 billion a year "give or take") which they can declare as income and pay out to their shareholders.

Why would Disney not want to deal now? A number of reasons.... 1) Hulu is loosing money. Disney doesn't loose any control, but can spread the losses onto Comcast. 2) It may want to avoid closing any sale until it has full control of 21CF (i.e. the cash would go to 21CF, not Disney, until the deal closes) 3) It may want to sell off other "surplus assets" to other parties (other than Comcast) Like AT&T, NetFlix, Google, Apple, etc....

I wish I knew more about when all of the regulatory approvals will arrive and when the 21CF deal will close. That would help some....

I think you meant Disney's 10K and not AT&T?

Also, I don't think you can add the 1.2B control premium to the valuation of Hulu. The latest valuation from Disney's proxy is very clear on what the 30% is valued at.

The premium fee is very likely to have been there when Hulu was formed and to get big players onboard. It doesn't add to the value of the company especially if you are already the major owner buying a minority. The market value for Hulu was given by Goldman Sach's above, which is about 8B. It has tremendous upside though.

 

[happycamperuni]

The problem with this analysis is that Hulu doesn't trade publicly, so any valuation ascribed to it is probably a book value (i.e. value of financial statements) not a market value (value based on what the business is worth in a competitive market).

Sky is valued based on the market value of its shares, not its book value.


You can't really compare the two, and I'd be shocked if Comcast agreed to trade 30% of Hulu at a book value of $2.4 billion to Disney in exchange for a market value of $15 billion for 39% of Sky with the difference meaning that Comcast would add $12.6 billion in cash for Disney.


You'd have to compare Netflix and other streaming services to Hulu to find a market valuation for it:

Netflix trades at $160 billion for 130 million subscribers (with an estimated future of 200-300 million subscribers within 5-10 years).

Hulu is probably worth $20-25 billion based on its 20 million subscribers (with an estimated market of 30-40 million subscribers within 5-10 years).

i.e. If Hulu was for sale, what would somebody pay for it? The answer to that question is far above $8-9 billion, which is just the book value that Comcast/Disney/Fox/AT&T keep for their book-keeping purposes.

It's tough to guess, but Hulu's subscribers are worth more than Netflix's on average because every Hulu subscriber is a US subscriber whereas less than half of Netflix's are (i.e. US subscribers pay the most for services), but obviously Netflix has the whole global market to target whereas Hulu is largely restricted to the US. If you average out those effects, you get a value somewhere around $1 billion in value to Hulu per 1 million subscribers.


Either way, if you start thinking about a market value for Hulu around $20-25 billion, you get to somewhere around what Comcast would agree to trade.


30% of Hulu valued somewhere around $6-7 billion plus around $8 billion in cash in exchange for 39% of Sky is probably what Comcast would agree to...

 

[bartholomr4]

I think you meant Disney's 10K and not AT&T?

Also, I don't think you can add the 1.2B control premium to the valuation of Hulu. The latest valuation from Disney's proxy is very clear on what the 30% is valued at.

The premium fee is very likely to have been there when Hulu was formed and to get big players onboard. It doesn't add to the value of the company especially if you are already the major owner buying a minority. The market value for Hulu was given by Goldman Sach's above, which is about 8B. It has tremendous upside though.

Thanks, I was just trying to make the point that 39% of Sky does not equal 30% of Hulu and provide some context. My summary came table you pasted above, plus the discussion below it. I think this suggests Hulu is worth about 11 Billion (high end) and the adjustments, premiums Disney was adding due to the change in control.

If you look at page 279 of the Disney10K, (my version is the prelimiary document and dated so some of this may have changed); "The estimated fair value of Disney's 30% interest in Hulu is 2.425 billion which is sensitize to the Fair Value Assumptions. The difference between historical carrying value of Disney's interest (136 million negative investment balance) and the estimated fair value is reported in equity (2.541 Billion) which we refer to as the "Hulu Gain. Upon the closing transactions, the Hulu Gain will be recognized in New Disney's statement of income, although the New Disney Pro Forma Statement of Income has not been adjusted to reflect the Hulu Gain as it will not have a continuing impact on New Disney's results. The estimated fair value of RemainCo's (21CF) 30 % interest is also 2.425 Billion. As New Disney would have a combined interest, it will record Hulu at its estimated 9.296 billion fair value and the implied premium of 1.246 billion. An increase or decrease in the estimated fair value of would have an impact on the Hulu Gain and goodwill. The New Disney Pro Forma Balance Sheet has been adjusted for the estimated vale of the 30% non controlling intreste (2.225 Billion) and 10% redeemable non controlling interest ($775 million) in Hulu.

The final purchase price allocations, which will be based on 3rd party valuations may result in different allocations for acquired assets and assumed liabilities than the amounts presented in the New Disney Pro Forma Financial Statements, and those differences could be material.

 

[happycamperuni]

Also, one factor missed in a lot of this analysis is that Disney can choose to sell some, but not all of their Sky stake at the 17.28 pounds price.

What if Disney sells 29% of Sky and keeps 10%?

Then Disney locks in 17.28 pounds per share on that 29% and still has 10% to trade for the Hulu stake.

That way they don't end up having to negotiate with Comcast without the leverage of the 17.28 pounds price per share of Sky. Because I'm very skeptical that Comcast will offer that same 17.28 pounds per share price to Disney if Disney doesn't give up some of their shares when the offer is open...

 

[AnotherDayAnotherDollar]

The problem with this analysis is that Hulu doesn't trade publicly, so any valuation ascribed to it is probably a book value (i.e. value of financial statements) not a market value (value based on what the business is worth in a competitive market).

Sky is valued based on the market value of its shares, not its book value.


You can't really compare the two, and I'd be shocked if Comcast agreed to trade 30% of Hulu at a book value of $2.4 billion to Disney in exchange for a market value of $15 billion for 39% of Sky with the difference meaning that Comcast would add $12.6 billion in cash for Disney.


You'd have to compare Netflix and other streaming services to Hulu to find a market valuation for it:

Netflix trades at $160 billion for 130 million subscribers (with an estimated future of 200-300 million subscribers within 5-10 years).

Hulu is probably worth $20-25 billion based on its 20 million subscribers (with an estimated market of 30-40 million subscribers within 5-10 years).

i.e. If Hulu was for sale, what would somebody pay for it? The answer to that question is far above $8-9 billion, which is just the book value that Comcast/Disney/Fox/AT&T keep for their book-keeping purposes.

It's tough to guess, but Hulu's subscribers are worth more than Netflix's on average because every Hulu subscriber is a US subscriber whereas less than half of Netflix's are (i.e. US subscribers pay the most for services), but obviously Netflix has the whole global market to target whereas Hulu is largely restricted to the US. If you average out those effects, you get a value somewhere around $1 billion in value to Hulu per 1 million subscribers.


Either way, if you start thinking about a market value for Hulu around $20-25 billion, you get to somewhere around what Comcast would agree to trade.


30% of Hulu valued somewhere around $6-7 billion plus around $8 billion in cash in exchange for 39% of Sky is probably what Comcast would agree to...

That would have came up when GS was doing the valuation for Hulu. Plus TWX bought 10% of Hulu just 2 years ago that valued it at 5.8B. There's no way Hulu has a valuation of 20-25B. Zero. If that's what Comcast tries to go with, then I guess Disney will be a partner in Sky and Comcast will be a partner in Hulu.

Thanks, I was just trying to make the point that 39% of Sky does not equal 30% of Hulu and provide some context. My summary came table you pasted above, plus the discussion below it. I think this suggests Hulu is worth about 11 Billion (high end) and the adjustments, premiums Disney was adding due to the change in control.

If you look at page 279 of the Disney10K, (my version is the prelimiary document and dated so some of this may have changed); "The estimated fair value of Disney's 30% interest in Hulu is 2.425 billion which is sensitize to the Fair Value Assumptions. The difference between historical carrying value of Disney's interest (136 million negative investment balance) and the estimated fair value is reported in equity (2.541 Billion) which we refer to as the "Hulu Gain. Upon the closing transactions, the Hulu Gain will be recognized in New Disney's statement of income, although the New Disney Pro Forma Statement of Income has not been adjusted to reflect the Hulu Gain as it will not have a continuing impact on New Disney's results. The estimated fair value of RemainCo's (21CF) 30 % interest is also 2.425 Billion. As New Disney would have a combined interest, it will record Hulu at its estimated 9.296 billion fair value and the implied premium of 1.246 billion. An increase or decrease in the estimated fair value of would have an impact on the Hulu Gain and goodwill. The New Disney Pro Forma Balance Sheet has been adjusted for the estimated vale of the 30% non controlling intreste (2.225 Billion) and 10% redeemable non controlling interest ($775 million) in Hulu.

The final purchase price allocations, which will be based on 3rd party valuations may result in different allocations for acquired assets and assumed liabilities than the amounts presented in the New Disney Pro Forma Financial Statements, and those differences could be material.

That's fair, so 9.3B would give 30% an estimated value of 2.8B. Going on the high end of 11B would bring us to 3.3B. Anything above that is pipe dream at this point.

 

[happycamperuni]

That would have came up when GS was doing the valuation for Hulu. Plus TWX bought 10% of Hulu just 2 years ago that valued it at 5.8B. There's no way Hulu has a valuation of 20-25B. Zero. If that's what Comcast tries to go with, then I guess Disney will be a partner in Sky and Comcast will be a partner in Hulu.



That's fair, so 9.3B would give 30% an estimated value of 2.8B. Going on the high end of 11B would bring us to 3.3B. Anything above that is pipe dream at this point.

Those estimates were based on dividing up the value of Disney's offer to Fox among Fox's assets (if you're talking about the most recent valuation estimates); most other estimates of Hulu's valuation have been book value estimates.

Time Warner was invited to invest into the business taking an equal portion from the 3 owners at the book value/carrying value of Hulu because they were seen as a strategic media investor similar to the then 3 owners. i.e. They received a preferential deal because they were seen increasing the overall value of Hulu by providing content for their live streaming service.

If it was a hedge fund or a non-media business buying in, I could understand your point, but I don't think you've really disproven anything I said:

If Netflix was still a privately held company like Hulu or Uber or any other private company, it would probably be worth $60-80 billion in book value/carrying value. That has nothing to do with the fact that it currently has a $160 billion market capitalization.


The same applies to Sky which Comcast has offered $38.8 billion for its stock based on this auction situation and the bidding war. The book value or fair value of Sky is probably around $20 billion.

It's apples and oranges to compare Sky's public valuation to Hulu's private valuation. They are not remotely comparable numbers.


And the most important point: Comcast has significantly more power as a minority shareholder of Hulu than Disney would as a minority shareholder of Sky. Hulu was structured to give each of its 30% shareholders a couple of board seats and a say in the decision making process to determine how Hulu invests and makes strategic decisions. Yes, Disney will control the CEO of Hulu and a majority of the board, but Comcast has more rights than typical minority owners. There's also the fact that Comcast controls the NBC portion of content on Hulu and that will be up for renegotiation when the carriage deals lapse.

The reverse isn't true for Sky which is just a normal public corporation. Comcast will have more complete control of Sky once it takes 51+% of the shares and will be able to control the CEO and whole board and its future decision making process. So that's another consideration for this relationship.


The most sensible outcome is for Disney to tender most of its Sky stake at 17.28 pounds per share, and then keep $4-5 billion worth of Sky shares (around 10-12% of Sky) to trade for Comcast's 30% of Hulu.