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21st Century Fox to Create New Fox Entertainment Group

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Key elements of the new Fox

In order to focus on its core business strengths (Fox News, Fox Business, Fox Sports, Fox Broadcasting Company, Fox Television Stations Group, FS1, FS2, Fox Deportes, and Big Ten Network), Twenty-First Century Fox (FOXA) (or Fox) has decided to sell its remaining assets to media giant The Walt Disney Company (DIS). The new Fox after this spin-off will continue to hold equity stakes in Roku (ROKU).

From the graph above, we can see the total revenue growth of both Fox and Disney in the last five years. Fox’s and Disney’s revenues grew at a CAGR (compound annual growth rate) of 0.7% and 5.2%, respectively, in the same period.

The deal will also enhance existing Fox investors, who will receive one share in the new Fox for each same class FOXA share held, coupled with an $8.5 billion cash dividend to be paid before the completion of the deal.

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Fox gets the bulk of its advertising and affiliate revenue through news and sports networks. It also has long-term sporting rights with sports organizations, including NASCAR,[1. National Association for Stock Car Auto Racing] FIFA,[2. Fédération Internationale de Football Association], and the USGA[3. United States Golf Association]. These contracts could drive Fox’s business in the long term.

How will Disney benefit?

Disney is set to acquire the remaining assets (Fox’s movie studios, FX Networks, National Geographic, Hulu, Star in India, and Fox’s 39% stake of Sky) across Europe for an all-stock deal of $52.4 billion (or $66.1 billion if Fox’s debt of $13.7 billion is included).

The deal may also allow Disney to boost its upcoming DTC (direct-to-consumer) business model and compete with video streaming operators Netflix (NFLX) and Amazon Prime Video (AMZN).

Disney will distribute ~515 million new shares to current Fox stakeholders, which will be a 25% control in the new entity. Fox believes the acquisition will generate ~$2 billion in cost savings.

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