June 20, 2018 — The Walt Disney Company today announced that it has signed an amended acquisition agreement with Twenty-First Century Fox, Inc. (“21st Century Fox”), for $38 per share in cash and stock. Disney will acquire 21st Century Fox immediately following the spin-off of the businesses comprising “New Fox” as previously announced. The acquisition agreement counters a June 13, 2018 offer for 21st Century Fox assets made by Comcast (see below).
Under the amended agreement, 21st Century Fox shareholders may elect to receive, for each share of 21st Century Fox common stock, $38 in either cash or shares of Disney common stock (subject to adjustment for certain tax liabilities as described in the original acquisition announcement). The overall mix of consideration paid to 21st Century Fox shareholders will be approximately 50% cash and 50% stock. The stock consideration is subject to a collar (described below under ‘Transaction Details’) and is expected to be tax-free to 21st Century Fox shareholders.
The 21st Century Fox businesses to be acquired by Disney remain the same as under the original agreement. Since the original agreement was announced, the intrinsic value of these assets has increased, notably due to tax reform and operating improvements.
“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,” said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. “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.”
Disney offer details
Disney is expected to pay a total of approximately $35.7 billion in cash and issue approximately 343 million new shares to 21st Century Fox shareholders, representing about a 19% stake in Disney on a pro forma basis.
The collar on the stock consideration will ensure that 21st Century Fox shareholders will receive a number of Disney shares equal to $38 in value if the average Disney stock price at closing is between $93.53 and $114.32. 21st Century Fox shareholders will receive an exchange ratio of 0.3324 shares of Disney common stock if the average Disney stock price at closing is above $114.32 and 0.4063 shares of Disney common stock if the average Disney stock price at closing is below $93.53. Elections of cash and stock will be subject to proration to the extent cash or stock is oversubscribed.
Disney will also assume about $13.8 billion of net debt of 21st Century Fox. The acquisition price implies a total equity value of approximately $71.3 billion and a total transaction value of approximately $85.1 billion (assuming no tax adjustment). Disney has secured financing commitments for the cash portion of the acquisition.
The amended transaction is expected to be accretive to Disney earnings per share before the impact of purchase accounting for the second fiscal year after the close of the transaction, and to yield at least $2 billion in cost synergies by 2021 from operating efficiencies realized through the combination of businesses.
As announced in the original acquisition agreement, the businesses to be acquired by Disney include 21st Century Fox’s film production businesses, including Twentieth Century Fox, Fox Searchlight Pictures and Fox 2000 Pictures; Fox‘s television creative units, Twentieth Century Fox Television, FX Productions and Fox21; FX Networks; National Geographic Partners; Fox Sports Regional Networks; Fox Networks Group International; Star India; and Fox’s interests in Hulu, Sky plc, and Tata Sky. The acquisition will occur immediately after the spin-off by 21st Century Fox of the Fox Broadcasting network and stations, Fox News Channel, Fox Business Network, FS1, FS2 and Big Ten Network into a newly listed company referred to as New Fox. If 21st Century Fox completes its acquisition of the 61% of Sky it doesn’t already own prior to closing of the Disney acquisition, Disney would assume full ownership of Sky, including the assumption of its outstanding debt, upon closing.
The acquisition will significantly increase Disney’s international footprint and expand the content and distribution for its direct-to-consumer (DTC) offerings, which include ESPN+ for sports fans; a Disney-branded streaming video-on-demand service launching in late 2019 that will feature Disney, Pixar, Marvel and Star Wars films along with a host of exclusive original content and library titles; and its ownership stake in Hulu. As a result of the acquisition, Disney will hold a controlling stake in Hulu.
Disney believes the transaction has a clear and timely path to regulatory approval. Both companies have spent the past six months working toward meeting all conditions necessary for closing. In the amended agreement, Disney has increased the scope of its commitment to take actions required to secure regulatory approval.
The amended agreement has been approved by the boards of directors of Disney and 21st Century Fox. The transaction is subject to approval by Disney and 21st Century Fox shareholders, clearance under the Hart-Scott-Rodino Antitrust Improvements Act, a number of other non-United States merger and other regulatory reviews, and other customary closing conditions. Both companies had been scheduled to hold shareholder meetings on the previously announced transaction on July 10. In light of the amended agreement, the companies are required to prepare updated SEC filings and proxy materials which will be sent to shareholders. A new date for the shareholder meetings will be announced.
Comcast offer details
Comcast proposes to acquire 100% of the outstanding shares of 21st Century Fox for $35.00 per share in cash, reflecting a $65 billion equity value for 21st Century Fox (after giving effect to the proposed spinoff of New Fox) a premium of approximately 19% to the value of Disney’s original offer.
Comcast’s all-cash proposal will provide 21st Century Fox shareholders with certain value and immediate liquidity. The proposal is not subject to a financing condition. Comcast has received Highly Confident Letters from Bank of America, Merrill Lynch and Wells Fargo.
Comcast will agree to the same divestiture package as Disney, i.e., a commitment to divest (i) any of 21st Century Fox’s regional sports networks (RSNs) and (ii) other 21st Century Fox assets representing up to $500 million of EBITDA (less up to $250 million of EBITDA attributable to divested RSNs).
Comcast will agree to the same allocation of any tax obligations as Disney in connection with any required divestitures.
Comcast will agree to the same reverse termination fee of $2.5 billion as Disney, in the event the transaction does not close as a result of a failure to obtain the required regulatory approvals.
Comcast will also agree to behavioral restrictions as extensive as those agreed to by Disney and, like Disney, will also agree to litigate any action taken by the Department of Justice to block the transaction.
In addition to its payment of the $2.5 billion reverse termination fee, in the unlikely event that its transaction is terminated due to a failure to obtain the required regulatory approvals, Comcast will also agree to reimburse 21st Century Fox for the $1.525 billion break-up fee required to be paid to Disney in connection with termination of the Disney transaction and entry into a merger agreement with us.
Comcast has separately announced, pursuant to Rule 2.7 of the UK City Code on Takeovers and Mergers, a pre-conditional all-cash firm offer for the entire issued and to be issued share capital of Sky plc. Comcast intends to pursue this offer in parallel with its acquisition of 21st Century Fox.