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Comcast Outbids Disney for Fox Assets: Media ETFs Surge

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U.S. cable operator Comcast Corp (CMCSA - Free Report) has made a $65 billion or $35 per share bid to acquire the film production and studio assets of Twenty-First Century Fox (FOXA - Free Report) . It is the largest all-cash deal ever, surpassing Bayer's $64 billion merger with Monsanto, according to Thomson Reuters.

The move was highly expected, especially after the regulatory approval for AT&T’s (T - Free Report) acquisition of Time Warner . The move resulted in a bidding war with The Walt Disney Company (DIS - Free Report) , which had struck a deal in November to acquire the same assets for $52.4 billion in an all-stock deal (read: AT&T-TWX Deal Approval to Spark M&A Frenzy: 4 ETFs to Profit).

This is because Comcast’s offer is 19% higher than that of House of The Mouse, which is home to Lucasfilm (the Star Wars movies), Marvel (Avengers) and Pixar (Toy Story) as well as the Disney brands. Fox shareholders are expected to vote on the Disney transaction on Jul 10 though the company can postpone it.

How Fox Matters to Both

Both Disney and Comcast are hoping to acquire Fox’s film production business, which includes Twentieth Century Fox, Fox Searchlight and Fox 2000, and popular entertainment properties - X-Men, Fantastic Four and Deadpool. Fox TV film studio includes This Is Us, Modern Family, and The Simpsons, regional sports networks and entertainment cable channels like National Geographic, FX Networks, Fox Sports Regional Networks, as well as international networks like Star India, a controlling stake in Hulu, and a 39% stake of European satellite provider, Sky.

The acquisition of these assets will enhance the streaming and television content of both the companies and pose a significant threat to growing digital rivals like Netflix (NFLX - Free Report) and Amazon.com (AMZN - Free Report) (see: all the Consumer Discretionary ETFs here).

For Comcast, the purchase of Fox could bulk up its portfolio of films and TV shows and help in luring Internet and cable subscriptions, which have been lower in the wake of surging demand for online services. It also gives the company a majority stake in Hulu as CMCSA already owns a sizable chunk of it. The deal will add to what Comcast already has within NBCUniversal, include channels like Bravo and E!, as well as Universal Pictures film library. Comcast could become the biggest player in Hollywood by acquiring Fox.

As far as Disney is concerned, the acquisition will complement its planned launch of an ESPN streaming service in 2018 and the studio's streaming service in 2019 (read: Disney-Fox Deal to Change Media Industry: ETF in Focus).

Market Impact

The battle to acquire Fox could transform the entire media industry, setting the stage for a surge in media ETFs. Below we have highlighted a couple of them:

Invesco Dynamic Media ETF (PBS - Free Report)

PBS provides exposure to media stocks under one roof. It seeks to offer capital appreciation by investing in companies that are selected on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value by tracking the Dynamic Media Intellidex Index. The product has AUM of $50.1 million and average daily volume of 15,000 shares. It charges 63 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (see: 6 ETFs to Score High from World Cup Spending Spree).

iShares Evolved U.S. Media and Entertainment ETF (IEME - Free Report)

This newly actively managed ETF employs data science techniques to identify companies with exposure to the media and entertainment sector. It has accumulated $5.2 million in its asset base since Mar 21. The ETF charges 18 bps in annual fees and trades in paltry volume of around 2,000 shares.

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