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Looking at Disney’s Debt Levels amid Fox Asset Acquisition

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Disney’s acquisition of Fox assets

Walt Disney (DIS) agreed to buy media and entertainment assets including a 39% stake in London-based Sky from Rupert Murdoch-owned 21st Century Fox (FOXA) for $71.3 billion in June. However, in September, Disney, and Fox planned to sell the remaining 39% stake in European broadcaster Sky to Comcast (CMCSA), which won the bid for a 61% stake in Sky against rival bidder Fox.

Disney now remains on track to purchase Fox’s assets including film and TV studios, cable networks such as FX Networks, and Fox Sports Regional Networks, Fox Networks Group, stakes in National Geographic Partners, Indian satellite TV group Star India, Hulu, and other assets.

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Disney’s debt load

Disney’s debt levels are high, as it is in the process of buying Fox assets in half cash and half stock. Its cash-to-debt ratio was at 0.20x as of September 30, 2018. Usually, the company can pay off its debt using cash in hand if the ratio is more than one. Disney’s cash and cash equivalents were $4.2 billion at the end of September, whereas the long-term debt was ~$17.1 billion. The company has suspended its share repurchase program temporarily to utilize the amount for the Fox acquisition of media assets. Disney expects to resume share repurchases after it improves its cash-to-debt ratio with a single-A credit rating.

The sale proceeds from the 39% stake in Sky could help Disney to reduce its debt load and invest in its Disney-branded direct-to-consumer offering. Fox and Disney had agreed to sell a 39% stake in Sky for about 11.6 billion pounds (or $15.3 billion). Additionally, Disney is also required to divest Fox’s regional sports networks, which would further reduce its debt amount.

Similarly, Comcast announced on October 1, 2018, that it will not repurchase shares in 2019, as it will focus on reducing its debt levels in connection with its $40 billion acquisition of Sky.

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