What To Make Of Disney And Fox’s Rumored Talks
Disney (NYSE: DIS) is reportedly looking to acquire most of 21st Century Fox‘s (NYSE: FOX) portfolio. While the exact details and pricing of the potential deal remain unknown, it reportedly includes buying up Fox’s offerings on television (FX and National Geographic) and movies, notably the rights to the Marvel characters that Fox still owns. In other words, Disney could own all of the X-Men, Fantastic Four, and other Marvel characters that are outside its domain if this deal goes through. On the other hand, Fox’s focus would likely shift to producing news and sports content for newspapers and TV channels like Fox News and Sky.
It should be noted that both companies have had talks about some sort of deal in recent weeks, but the two sides are not officially negotiating at the moment. The talks may come up again, but there is no guarantee that the deal will get done. However, the report caused Fox’s stock to surge by around 8%, while Disney’s stock rose marginally, after the report first surfaced.
The reality of the situation is that the media industry is seeing secular pressure, primarily due to the growing cord-cutting phenomenon. This, in turn, is affecting cable and broadcasting businesses. Since many big media players are facing slowdowns from these industry dynamics, they are considering M&A and other deals in order to improve their positioning.
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Our $114 price estimate for Disney’ stock is more than 10% ahead of the current market price, while our $32 price estimate for Fox’s stock is around 20% ahead of the current market price.
What This Means For Disney & Fox
The negotiations come at a crucial time, as Disney plans to remove its content from Netflix’s (NASDAQ: NFLX) platform following the expiry of the two companies’ deal at the end of 2018, and launch its own streaming service. According to Reuters report, Fox accounted for 17% of Netflix’s top-rated shows by IMDb as of June, while Disney made up 7%. Disney could use movie and TV content from Fox to compete in the rapidly changing streaming space, where competition now includes companies such as Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), Netflix, and Google (NASDAQ:GOOG). There is also a possibility that Fox’s potential addition to Disney’s library could lead to the likes of The Avengers, the Guardians Of The Galaxy, the Fantastic Four, and The X-Men (including Deadpool) all on screen together.
Fox is already having trouble gaining the approval of European regulators to acquire full control of European satellite TV service Sky. Accordingly, it could choose instead to simply sell its portion of the satellite service to Disney. In addition, Disney and Fox are also co-owners of the Hulu streaming service, with a combined stake of 60%. It is not clear whether Fox has discussed selling its stake in Hulu to Disney or not.
Please refer to our complete analysis for Disney & 21st Century Fox
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