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

[Sirwalterraleigh]

Not if there's a Hugh Jackman M&G!

That’s an “exclusive ticketed event”

 

[Stripes]

I've been studying the numbers of what Disney would look like if they put out a $90 billion bid, assuming 50/50 cash/stock, and compared that to the impact of a $90 billion all-cash bid from Comcast.

Disney would increase their debt from their current bid of $74.79 billion to $84.14 billion. This would increase their leverage from 3.1x to 3.5x assuming 39% stake in Sky. (I didn't run the numbers including Sky simply because I think they'll give it up/sell it if they have to.)
This is something Disney would be comfortable with.

Disney would also have to issue about 96 million more shares at the midpoint of the existing collar for a total of 439 million new shares, this compares to initial and current bids of 515 million and 343 million shares, respectively. The midpoint is currently situated at roughly $104/share, about $2 dollars less than their current share price. This would mean that Fox shareholders would hold roughly 23% of the pro forma company. This is more than the current bid of 19%, but less than the initial bid where they would hold 25%. Disney should also be comfortable here.

Raising Comcast's bid to $90 billion all-cash would increase their debt from $170 billion to $195 billion, assuming there is no increase in their Sky bid, which there is likely to be, but I didn't include it for the sake of comparison. This would increase their leverage from 4.25x to 4.88x, in other words it would take them 5.36 years to pay down their debt to reasonable levels versus the 4.1 years of their current bid, assuming a decrease of half a turn of leverage per year.

With this model, Disney would be able to return to attractive leverage 2.76 years before Comcast. I should also note that going this high for Comcast would almost certainly devastate their credit rating.

Have fun picking this apart!

You guys should have checked my work

Looks like I used Comcast's EBITDA after synergies to calculate their leverage, but Disney's before synergies. In other words, it's actually a bit better for Disney/worse for Comcast than these numbers show. The post above has been edited with the correct figures.

 

[the.dreamfinder]

Those companies are not interested in buying big studios. Many have already said so. It just doesn't make sense for them for a whole host of reasons.

The smartest thing Rich Greenfield has ever said was it’s better, in the long run, for new entrants to learn the business and create their own content than buying an existing company.

 

[Stripes]

The smartest thing Rich Greenfield has ever said was it’s better, in the long run, for new entrants to learn the business and create their own content than buying an existing company.

Yep, completely agree with that. But he doesn't understand that Disney can't simply invest in content and create a Netflix competitor because other Hollywood studios would be unwilling to license their content to a Disneyflix. Buying Fox gives them a significant amount of adult IP, the lack of which would be a significant hurdle to the success of a true Netflix competitor.

 

[ToTBellHop]

Not if there's a Hugh Jackman M&G!

You know it would be “Hugh Jackman” like Star Lord at Epcot this summer is “Chris Pratt”.

 

[MerlinTheGoat]

My understanding is that there are discussions of fat that would be trimmed specifically for this.

I believe marni1971 also hinted at this in another thread. Was there really anyone who thought this Fox deal wouldn't negatively impact the parks? Especially WDW, always being Disney's favorite victim to abuse and suck dry whenever they want extra money for something. Even Shanghai Disneyland going over budget had a noticeable effect on WDW for a while, and the Fox deal utterly dwarfs Shanghai Disneyland's costs.

I'm going full-in negative mode here and predict that if this deal goes through, Disney will hit park budgets with a full on nuclear missile strike. Potentially the worst we've seen yet. Upcoming projects I expect to be at least massively budget cut and reduced in quality, if not outright canned. I also expect basic maintenance and cleanliness to see a substantial reduction.

Only time will tell whether WDW will once again match the 2010-2012 low point, or heck even the Pressler/Harriss. But there is simply no way I can see a Fox buyout having zero negative impact on WDW. I expect it to be severe, and I also expect it to be lasting impact.

BTW, for the record I believe the Universal Parks would probably suffer a similar fate if Comcast won Fox instead. In the aftermath of a successful purchase of Fox, I gather that Comcast would be in far more dire financial condition than Disney will be. So despite some Uni fans insisting that Comcast is committed to expansion and improvement of their parks (especially Orlando with their vast newly re-acquired land) regardless of what happens with Fox, I don't believe that.

 

[MisterPenguin]

You know it would be “Hugh Jackman” like Star Lord at Epcot this summer is “Chris Pratt”.

I could live with someone who looks like Hugh Jackman.

 

[networkpro]

I don't see it, even with the divested properties taken out of the figures ..there's sufficient income to both service all the debt and maintain existing facilities. More so than what would happen to Universal if they increased their debt to 174 billion.

FOXA
Selected Financial Data (USD $ in millions)
Enterprise value (EV)104,148
Earnings before interest, tax, depreciation and amortization (EBITDA)6,526
RatioEV/EBITDA15.96

DIS
Selected Financial Data (USD $ in millions)
Enterprise value (EV)180,648
Earnings before interest, tax, depreciation and amortization (EBITDA)17,077
RatioEV/EBITDA10.58

CMCSA
Selected Financial Data (USD $ in millions)
Enterprise value (EV)214,890
Earnings before interest, tax, depreciation and amortization (EBITDA)28,233
RatioEV/EBITDA7.61

 

[MerlinTheGoat]

I don't see it, even with the divested properties taken out of the figures ..there's sufficient income to both service all the debt and maintain existing facilities. More so than what would happen to Universal if they increased their debt to 174 billion

No one is saying Disney would HAVE to cut budgets at the parks, nor should they. But they will anyways, that's how they conduct business. And we've gotten word from two trustworthy people (marni1971 and MansionButler84) that cuts are already being prepared proactively in response to the Fox deal likely going through.

Disney in recent history hasn't even required a good financial reason to slash park budgets. They've made cuts to quality without even requiring a major expenditure to compensate for elsewhere. Shanghai Disneyland going over budget caused them to make a lot of budget cuts at WDW. And again Shanghai's struggles were nowhere near the expense this Fox deal will cost them, so you can safely bet the parks will suffer over this.

 

[Stripes]

Btw, in terms of sources on this battle, Comcast obviously has CNBC's ear. David Faber in particular seems to have strong sources in the Comcast and Disney camps. Personally, I think Disney is feeding Bloomberg. With the Murdochs clearly giving the WSJ the rundown.

If you notice a change in direction soon from CNBC with their hosts moving to a "Comcast doesn't need Fox" agenda, you know they got some "guidance" from Philly.

 

[Rodan75]

Btw, in terms of sources on this battle, Comcast obviously has CNBC's ear. David Faber in particular seems to have strong sources in the Comcast and Disney camps. Personally, I think Disney is feeding Bloomberg. With the Murdochs clearly giving the WSJ the rundown.

If you notice a change in direction soon from CNBC with their hosts moving to a "Comcast doesn't need Fox" agenda, you know they got some "guidance" from Philly.

In the videos I watched yesterday, it looked like they were uncomfortable on the topic and were lightly starting on the narrative that Comcast doesn't need Fox, but I wasn't sure if that was to begin to convince Roberts or to start setting expectations.

 

[Rodan75]

No one is saying Disney would HAVE to cut budgets at the parks, nor should they. But they will anyways, that's how they conduct business. And we've gotten word from two trustworthy people (marni1971 and MansionButler84) that cuts are already being prepared proactively in response to the Fox deal likely going through.

Disney in recent history hasn't even required a good financial reason to slash park budgets. They've made cuts to quality without even requiring a major expenditure to compensate for elsewhere. Shanghai Disneyland going over budget caused them to make a lot of budget cuts at WDW. And again Shanghai's struggles were nowhere near the expense this Fox deal will cost them, so you can safely bet the parks will suffer over this.

I think this is where executive ego comes into play. The CFO may state that P&R doesn't need to do any cuts for Disney to make the Fox purchase and that may be the truth. But Chapek, who is gunning for the big chair, may see cuts as an opportunity to 'be the hero' and bring down costs while trying to grow and expand the P&R offerings. I think we've seen that dynamic plenty in the past.

This is really Chapek's big opportunity to prove to us and to Disney who he is as a corporate leader. Is he going to find new ways of creating value for the customer and the company or is he going to offer debilitating cuts to P&R (I guess it is P,E&CP now)?

 

[Indy_UK]

Apart from the constant cost cutting, I actually like Chapek. Long term I think he will be stuck of Parks and Merchandise and be one of those that never gets the top job.

Maybe Chapek will go on a spending spree if he does get the top job lol


Also, when this Fox deal goes through, have Disney said for certain that the Fox brand is staying?

 

[seascape]

The good thing about parks and resorts is their competition is Universal and its owned by Comcast. This fight has become so personal that Disney may actually surprise us and increase spending on the parks, especially WDW.

 

[Rodan75]

Apart from the constant cost cutting, I actually like Chapek. Long term I think he will be stuck of Parks and Merchandise and be one of those that never gets the top job.

Maybe Chapek will go on a spending spree if he does get the top job lol

Also, when this Fox deal goes through, have Disney said for certain that the Fox brand is staying?

Unlike Staggs and Rasulo, Chapek seems to have a vision of what he wants to accomplish. That vision can and should be debated on its merits, but at least he isn't' an empty suit. That vision and his ability to convince Iger and the Board on investments is getting things built.

If he really wants to the top job, not only does he need to continue his work on reinvesting in the Parks and continuing their growth, but also build out more of the 'Experiences' concept and get CP on a consistent growth cycle. That should require big bold risks, including acquisitions and expansions, that help monetize the branded IP coming out of the Studios and Media divisions.

If he just keeps his head low and essentially pulls a Staggs or Rasulo, he will stagnate in the current job.

 

[CaptainAmerica]

If by "top job," you mean CEO, not going to happen.

That would be Kevin Mayer, unless something earth-shattering happens.

 

[Stripes]

The new proxy has been filed with the SEC. I'm digging through it now.
https://www.sec.gov/Archives/edgar/data/1744489/000119312518201596/d770960ds4.htm

Edits: Page 129 gets into new developments.
From page 133, another nail in the Comcast coffin:

The 21CF board discussed in detail the conclusion of 21CF management and Cleary that, while a potential Disney transaction was likely to receive required regulatory approvals and ultimately be consummated, a strategic transaction with Comcast continued to carry higher regulatory risk leading to the possibility of significant delay in the receipt of merger consideration as well as the risk of an inability to consummate the transactions. Key considerations driving this conclusion with respect to Disney included (1) Disney’s mix of businesses, (2) the progress made in the ongoing DOJ approval process under the original combination merger agreement, (3) the progress that had been made by 21CF and Disney in working toward other regulatory submissions under the original combination merger agreement and (4) the improved level of regulatory efforts to which Disney had committed in its current proposal as compared to the likely level and nature of risk its proposed transaction posed. With respect to Comcast, the 21CF board considered the relatively higher regulatory risk – in terms of both delay and closing risk – arising from (1) the DOJ’s apparent sensitivity to the potential anticompetitive effects of vertical integration and rejection of behavioral remedies before and after the litigation with respect to the AT&T / Time Warner transaction, which the court’s opinion by its terms did not reject as a matter of law but concluded had not been supported by sufficient evidence; (2) Comcast’s market share in important designated market areas and its associated strength arising from its broadband business; (3) Comcast’s previous acquisition of one of the leading content companies; (4) 21CF’s own prior regulatory submissions on related issues in the context of both Comcast’s proposed acquisition of Time Warner Cable Inc. as well as the AT&T / Time Warner transaction; (5) the upcoming expiration of the 2011 consent decree with respect to Comcast’s acquisition of NBC Universal as well as the FCC’s abandonment of net neutrality; (6) the prospect of Comcast acquiring a controlling position in Hulu, which competes with Comcast’s core business, particularly given that the DOJ placed conditions on Comcast’s ownership of even a minority position in Hulu, LLC in the now-expiring 2011 consent decree; (7) Comcast’s ownership of several regional sports networks and competition with 21CF’s regional sports networks for acquisition of local sports rights; and (8) Comcast’s proposed contractual allocation of regulatory risk, which merely matched the regulatory efforts and reverse termination fee provisions in the original combination merger agreement and did not offer enhanced protections to address the higher regulatory risk posed by a transaction with Comcast.

 

[Rodan75]

Great article on the impacts of the deal to both Comcast and Disney and lays out what many others have said, that Comcast may not make another move here:

https://seekingalpha.com/article/4184025-4-ds-disneys-deal-fox

 

[AnotherDayAnotherDollar]

Fox Says Regulatory Risk Could Delay, Derail Any Comcast Bid

https://www.bloomberg.com/news/arti...y-concerns-could-delay-derail-any-comcast-bid

 

[Rodan75]

The new proxy has been filed with the SEC. I'm digging through it now.
https://www.sec.gov/Archives/edgar/data/1744489/000119312518201596/d770960ds4.htm

Edits: Page 129 gets into new developments.
From page 133, another nail in the Comcast coffin:

I like how Disney specified that if the counter proposal leaked, then it would be pulled. It definitely get the impression from the write up that Disney felt like they were negotiating from a position of strength.