from thedeal.com
How anxious is the Walt Disney Co. to take control of Fox Family Worldwide? Just ask Mouse House chairman and CEO Michael Eisner, who, on confirming the $5.3 billion deal Monday said, "We already have a [programming] schedule board up in our offices."
Disney also seemed anxious to justify the very rich multiple of 34 times trailing cash flow it's paying for assets to be obtained via $3 billion in cash and $2.3 billion in assumed debt. The cash payment will go to News Corp. and Haim Saban, each with a 49.5% stake in Fox Family, and to Allen & Co., which owns the remaining 1%.
After comparing cash-flow margins of 38% for Fox Family to those "15 or more percentage points higher" for comparable operations, and then projecting $50 million in cost savings and a doubling in Ebitda by 2003, Disney CFO Thomas Staggs called a multiple of "less than 18 times a better perspective on the price-value relationship of this deal."
Maybe so, but that's not to say Disney maintained credibility throughout the entire conference call staged for the Wall Street community to elaborate on its biggest acquisition since buying Capital Cities/ABC for $19 billion a half-decade ago. (Interestingly enough, both deals came out of the annual mogulfest held by Allen & Co. in Sun Valley, Idaho.)
Toughest to swallow was Eisner's take on Pat Robertson's "700 Club" and other programs produced by the Christian Broadcast Network, which contractually "travel" with Fox Family to its future and re-branded destination, ABC Family. The Saban/News Corp. team behind Fox Family built the channel in 1997 after it acquired both the CBN's Family Channel and obligations to maintain some of its programming.
"We happen to think he's an asset to the channel," Eisner said of Robertson, before calling the daily block taken by the 700 Club "a quality program ... [So] there's no problem there, either."
Disney's appraisal of its ability to handle the extra debt may also have been a little cavalier, even though Staggs noted several banks had already offered "to furnish the entire amount of the purchase." In response to the planned purchase, Standard & Poor's immediately revised the company's outlook to negative from stable.
"The acquisition raises Disney's gross debt to Ebitda to 2.9 times, before operating synergies, from 1.9 times for the trailing twelve months ended March 31, 2001," the rating house explained. The larger ratio, it added, exceeded the 2.0 times debt-to-cash flow target it had established for Disney's maintaining "a single-A rating."
Otherwise, reaction to the Disney acquisition appeared positive, in keeping with Eisner's depicting of it as a "compelling combination" — projected to close within four months — "that will drive Disney to the Number 1 position in basic subscribers in the United States."
Assets included in the sale are:
* The Fox Family Channel, which reaches 81 million cable and satellite television subscribers throughout the U.S.;
* A 76% ownership interest in Fox Kids Europe, available to 24 million subscribers across Europe and soon to be recast under the Disney brand;
* Fox Kids channels in Latin America, available to 10 million subscribers; and
* Saban Library and Entertainment Productions, with more than 6,500 episodes of animated and live-action children's and family-friendly programming.
The deal also includes television rights to Major League Baseball games two nights a week during the regular season, plus eight to 11 first-round playoff games. Eisner called this twist "a contingency to the deal from the sellers."
Although Disney didn't use an investment bank, it turned to a team at Dewey Ballantine llp, led by Morton Pierce, chairman of the firm's M&A practice, for counsel. Bear, Stearns & Co. was financial adviser to News Corp. and Squadron Ellenoff Plesent & Sheinfeld llp provided legal advice. Morgan Stanley and Alpine Capital were Haim Saban's financial advisers, and O'Melveny & Myers llp and Akin, Gump, Strauss, Hauer & Feld llp provided legal advice.
Disney left no doubt it regarded the obtained assets, from Fox Family to the baseball broadcasts, as underperforming. Although Eisner recognized Fox Family as "one of the most fully distributed cable platforms in the U.S., in about 92% of all cable and satellite households," the company couldn't resist invoking Nielsen to indicate improvement room.
Fox Family has a 0.13 rating in the targeted adult 18-to-49 demographic, compared with an average 0.50 for similarly targeted fare from TBS, USA or TNT. A simple and realizable ratings boost, Staggs said, should help the U.S. channel "increase advertising revenues by 50% (to $300 million in 2003), versus the $200 million generated in 2001."
Overseas promises even more explosive growth, as Disney plans to come close to doubling its inherited subscriber base of 35 million by adding 30 million in five years. Said Disney president and COO Robert Iger: "In addition to giving us an entry into markets like Scandinavia, Poland and Russia, the international Fox Kids channels allow us to broaden our branded reach in markets such as the U.K., France, Germany and Latin America, where we already have a strong presence."
Indeed, the deal's most difficult sale may be to affiliates of Disney-owned ABC. This often unruly group doesn't cotton to programming seen on their stations being widely available, yet Disney's affiliate contract allows up to 25% of ABC's prime-time lineup to be reused or repurposed.
Iger could scarcely restrain his enthusiasm about putting ABC programming to work on the channel just acquired, saying affiliate-contract terms provide "an unbelievable opportunity to strengthen the Family Channel programming line-up immediately." He also estimated 50% of Fox Family Channel's current programming would be gone in two years, while at the same trying to remain sensitive to the ABC station owners he must now appease. "We will engage in discussions with affiliates as early as today," Iger said, displaying the politesse of the surviving network-TV veteran he happens to be.
How anxious is the Walt Disney Co. to take control of Fox Family Worldwide? Just ask Mouse House chairman and CEO Michael Eisner, who, on confirming the $5.3 billion deal Monday said, "We already have a [programming] schedule board up in our offices."
Disney also seemed anxious to justify the very rich multiple of 34 times trailing cash flow it's paying for assets to be obtained via $3 billion in cash and $2.3 billion in assumed debt. The cash payment will go to News Corp. and Haim Saban, each with a 49.5% stake in Fox Family, and to Allen & Co., which owns the remaining 1%.
After comparing cash-flow margins of 38% for Fox Family to those "15 or more percentage points higher" for comparable operations, and then projecting $50 million in cost savings and a doubling in Ebitda by 2003, Disney CFO Thomas Staggs called a multiple of "less than 18 times a better perspective on the price-value relationship of this deal."
Maybe so, but that's not to say Disney maintained credibility throughout the entire conference call staged for the Wall Street community to elaborate on its biggest acquisition since buying Capital Cities/ABC for $19 billion a half-decade ago. (Interestingly enough, both deals came out of the annual mogulfest held by Allen & Co. in Sun Valley, Idaho.)
Toughest to swallow was Eisner's take on Pat Robertson's "700 Club" and other programs produced by the Christian Broadcast Network, which contractually "travel" with Fox Family to its future and re-branded destination, ABC Family. The Saban/News Corp. team behind Fox Family built the channel in 1997 after it acquired both the CBN's Family Channel and obligations to maintain some of its programming.
"We happen to think he's an asset to the channel," Eisner said of Robertson, before calling the daily block taken by the 700 Club "a quality program ... [So] there's no problem there, either."
Disney's appraisal of its ability to handle the extra debt may also have been a little cavalier, even though Staggs noted several banks had already offered "to furnish the entire amount of the purchase." In response to the planned purchase, Standard & Poor's immediately revised the company's outlook to negative from stable.
"The acquisition raises Disney's gross debt to Ebitda to 2.9 times, before operating synergies, from 1.9 times for the trailing twelve months ended March 31, 2001," the rating house explained. The larger ratio, it added, exceeded the 2.0 times debt-to-cash flow target it had established for Disney's maintaining "a single-A rating."
Otherwise, reaction to the Disney acquisition appeared positive, in keeping with Eisner's depicting of it as a "compelling combination" — projected to close within four months — "that will drive Disney to the Number 1 position in basic subscribers in the United States."
Assets included in the sale are:
* The Fox Family Channel, which reaches 81 million cable and satellite television subscribers throughout the U.S.;
* A 76% ownership interest in Fox Kids Europe, available to 24 million subscribers across Europe and soon to be recast under the Disney brand;
* Fox Kids channels in Latin America, available to 10 million subscribers; and
* Saban Library and Entertainment Productions, with more than 6,500 episodes of animated and live-action children's and family-friendly programming.
The deal also includes television rights to Major League Baseball games two nights a week during the regular season, plus eight to 11 first-round playoff games. Eisner called this twist "a contingency to the deal from the sellers."
Although Disney didn't use an investment bank, it turned to a team at Dewey Ballantine llp, led by Morton Pierce, chairman of the firm's M&A practice, for counsel. Bear, Stearns & Co. was financial adviser to News Corp. and Squadron Ellenoff Plesent & Sheinfeld llp provided legal advice. Morgan Stanley and Alpine Capital were Haim Saban's financial advisers, and O'Melveny & Myers llp and Akin, Gump, Strauss, Hauer & Feld llp provided legal advice.
Disney left no doubt it regarded the obtained assets, from Fox Family to the baseball broadcasts, as underperforming. Although Eisner recognized Fox Family as "one of the most fully distributed cable platforms in the U.S., in about 92% of all cable and satellite households," the company couldn't resist invoking Nielsen to indicate improvement room.
Fox Family has a 0.13 rating in the targeted adult 18-to-49 demographic, compared with an average 0.50 for similarly targeted fare from TBS, USA or TNT. A simple and realizable ratings boost, Staggs said, should help the U.S. channel "increase advertising revenues by 50% (to $300 million in 2003), versus the $200 million generated in 2001."
Overseas promises even more explosive growth, as Disney plans to come close to doubling its inherited subscriber base of 35 million by adding 30 million in five years. Said Disney president and COO Robert Iger: "In addition to giving us an entry into markets like Scandinavia, Poland and Russia, the international Fox Kids channels allow us to broaden our branded reach in markets such as the U.K., France, Germany and Latin America, where we already have a strong presence."
Indeed, the deal's most difficult sale may be to affiliates of Disney-owned ABC. This often unruly group doesn't cotton to programming seen on their stations being widely available, yet Disney's affiliate contract allows up to 25% of ABC's prime-time lineup to be reused or repurposed.
Iger could scarcely restrain his enthusiasm about putting ABC programming to work on the channel just acquired, saying affiliate-contract terms provide "an unbelievable opportunity to strengthen the Family Channel programming line-up immediately." He also estimated 50% of Fox Family Channel's current programming would be gone in two years, while at the same trying to remain sensitive to the ABC station owners he must now appease. "We will engage in discussions with affiliates as early as today," Iger said, displaying the politesse of the surviving network-TV veteran he happens to be.