Class A shares of Twenty-First Century Fox (NASDAQ: FOXA) (NASDAQ: FOX) were up 7.1% as of noon EDT Wednesday after Disney (NYSE: DIS) signed an amended agreement to acquire the entertainment conglomerate for $38 per share in cash and stock, for an equity value of $71.3 billion — a hefty premium over Disney’s previous $52.4 billion bid. Disney will also assume roughly $13.8 billion of Twenty-First Century Fox’s net debt, bringing the total transaction value to $85.1 billion.
Though Disney noted that the “intrinsic value of [Fox’s assets] has increased” since the original offer was made — thanks to tax reform and operating improvements — the timing of the new agreement is no coincidence. Just last week, Comcast (NASDAQ: CMCSA) upped the ante by presenting its own hard-to-refuse $65 billion cash bid for Fox.
But as I noted shortly before Comcast finalized its offer, there were a number of reasons that Fox favored a deal with Disney, including lower risk for regulatory challenges, Disney’s superior strategic fit, and “the relative attractiveness of the equity currency in a combined Disney-21CF.”
On the latter, Disney will issue roughly 343 million new shares to Twenty-First Century Fox through the new terms of the acquisition, representing a stake of approximately 19% of Disney. Also as per the original agreement, Disney will still acquire Fox’s film production businesses, television creative units, and Fox’s interests in Hulu, Sky, and Tata Sky. Meanwhile, Fox still plans to spin off its broadcasting, networking, and stations, Fox News Channel, Fox Business Network, FS1, FS2, and Big Ten Network into a newly listed company.
Disney chairman and CEO Robert Iger said:
The acquisition of 21st Century Fox will bring significant financial value to the shareholders of both companies, and after six months of integration planning we’re even more enthusiastic and confident in the strategic fit of the assets and the talent at Fox. At a time of dynamic change in the entertainment industry, the combination of Disney’s and Fox’s unparalleled collection of businesses and franchises will allow us to create more appealing high-quality content, expand our direct-to-consumer offerings and international presence, and deliver more personalized and compelling entertainment experiences to meet growing consumer demand around the world.
As it stands, the amended agreement has already been approved by the the boards of Fox and Disney, but is still subject to regulatory and shareholder approval. Both companies will schedule new shareholder meetings once they’re able to prepare updated SEC and proxy filings.
In the meantime, given the sweetened deal, it should come as no surprise to see Fox shares soaring today.
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