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Disney Welcomes Home Fox's X-Men, Sports Networks in the Mix

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Putting an end to all speculation, The Walt Disney Company (DIS - Free Report) and Twenty-First Century Fox, Inc. (FOXA - Free Report) has officially declared a deal. Per the deal, Disney will acquire majority of Twenty-First Century Fox’s assets, which includes its Film and Television studios accompanied by cable and international TV businesses. Following, the announcement shares of Disney and Twenty-First Century Fox gained nearly 3% and 7%, respectively, yesterday.

The value of the deal is pegged at $52.4 billion. However, the total transaction amount is nearly $66.1 billion, which includes $13.7 billion of net debt of Twenty-First Century Fox.

Disney Opens a New Pandora’s Box of Entertainment

Per the deal, Disney will acquire Twenty-First Century Fox’s film production business like Twentieth Century Fox, Fox Searchlight Pictures as well as Fox 2000 and its storied television units Twentieth Century Fox Television, FX Productions and Fox21.

The deal will bring Twenty-First Century Fox’s blockbuster properties like the X-Men, Fantastic Four and Deadpool under Marvel family. This will help to create more interesting inter-related characters as well as stories for audiences. Further, the inclusion of Avatar to the Disney family will give viewers an opportunity to enjoy storytelling within these amazing fantasy worlds.

Orin C. Smith, independent Lead Director of Disney stated “When considering this strategic acquisition, it was important to the Board that Bob remain as Chairman and CEO through 2021 to provide the vision and proven leadership required to successfully complete and integrate such a massive, complex undertaking.”

Disney to Rule Sports World

Disney is treading on the right path in its quest to strengthen arms. The accord would give the House of Mouse a hold on FX Networks, National Geographic Partners, Fox Sports Regional Networks (excluding flagship broadcast network, Fox News and the cable sports networks FS1 and FS2), Fox Networks Group International, Star India along with Fox’s stake in Hulu, Sky plc, Tata Sky as well as Endemol Shine Group. Notably, 21st Century Fox remain committed to closing its acquisition deal to buy 61% stake of Sky, which it does not currently. The transaction is expected to conclude by Jun 30, 2018.

Following the approval of deal, Disney would have telecasting rights of Major League Baseball and NBA in United States, Premier League, Serie A, Bundesliga and UEFA Champions League in Europe and also Indian Premier League.

Disney’s international footprint will increase substantially by the addition of the aforementioned sports channels. Inclusion of Sky will give Disney 23 million customers in UK, Ireland, Germany, Austria and Italy. Moreover, Fox Networks International operates above 350 channels in 170 countries, while Star India has 69 channels serving 720 viewers per month.

The deal would also be a bout of fresh air to Disney, which for quite some time now has been jostling in the fast changing media landscape, where rise in streaming and cord cutting have become two faces of the coin. The only possible way out is either you make yourself bigger or get eaten by a bigger fish, or you shrink to focus on core profitable operations.

No wonder, the buyout of these assets would considerably enhance the media mogul’s bargaining power with Cable TV providers, increase affiliate fees, provide a fresh lease of life to ESPN and create cost synergies. Further, the addition of Fox's rich library of movies and TV series would greatly enhance Disney’s prospects in the streaming service.

Wrapping Up

Technological advancement is playing a major role in how people prefer to watch their favorite programs now days, and with new entertainment products and services available traditional media players are losing competitive leverage. Disney to an extent has been the victim of the same.

Nevertheless, the company is taking steps to be more in sync with the contemporary. The acquisition of BAMTech, the video streaming and data analytics company, can be cited as one of the examples in that direction. Further, a deal with Fox would consolidate its position in the movie business as well as sports broadcasting.

However, it is to be seen that the deal, which received President Trump’s support, will clear antitrust hurdles or not. Some fear that the deal might face regulatory hurdles, as observed in the case of AT&T's (T - Free Report) deal to buy Time Warner . Sarah Sanders, White House spokeswoman stated “I know that the President spoke with Rupert Murdoch earlier today, congratulated him on the deal and thinks that, to use one of the president's favorite words, that this could be a great thing for jobs and certainly looks forward to and hoping to see a lot more of those.”

In the past three months, shares of this Zacks Rank #3 (Hold) have gained 12.7%, outperforming the industry’s growth of 2.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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