By
Mayowa Adebajo
February 13th, 2024
Walt Disney Co. completed its $71 billion acquisition of 21st Century Fox Inc.’s entertainments assets. Disney and Netflix stocks react in an unexpected way.
With the deal, Disney takes over a portfolio that includes the 104-year-old 20th Century Fox studio, the FX and National Geographic, and 30 percent of Hulu, the online video service. Also, given this acquisition worth $71.3 billion, the House of Mouse has one less big Hollywood competitor to fight against.
Despite the deal reduces the number of rivals and potentially increases its market share, Disney‘s stock fell by nearly 3 percent after the deal closed. Though it slightly recovered in after-hours trading, at the time of writing, the share had fallen 0,34 percent by market close to $109.99.
Each share of Twenty-First Century Fox (which traded under the symbols TFCF and TFCFA, as new Fox took over FOX and FOXA) were exchanged for $51.572626 in cash, or 0.4517 shares of TWDC Holdco, the holding company that will own both Disney and 21CF.
With this takeover, Walt Disney Co. began their heavy process of combining two massive organizations.
In his official email, Disney Chief Executive Bob Iger welcomed Fox employees into Disney saying:
“I wish I could tell you that the hardest part is behind us; that closing the deal was the finish line, rather than just the next milestone. What lies ahead is the challenging work of uniting our businesses to create a dynamic, global entertainment company with the content, the platforms, and the reach to deliver industry-defining experiences for generations to come.”
Netflix Prepared For Disney to Pull Its Content from Netflix’s Library
However, on the day when the mega-merger closed, Netflix saw it stock rise nearly 5%. The question is why?
If we know that Disney prepares to launch a rival streaming service later this year this merger can mean just one thing. Wall Street believes that any threat from a Disney-Fox combination has long been priced in to the stock. Meanwhile, Netflix has been preparing for years for Disney to pull its content from Netflix’s library, stocking up on its own share of must-watch titles.
Iger also said:
“Combining Disney’s and 21st Century Fox’s wealth of creative content and proven talent creates the preeminent global entertainment company, well positioned to lead in an incredibly dynamic and transformative era.”
With the deal, Disney now has ownership of movie franchises such as X-Men, Deadpool and Fantastic Four. Long-running animation comedy The Simpsons will also be joining the House of Mouse.
As would be expected the animation comedy used its own brand of humor to mark the occasion. In a tweet published by the show’s executive producer Al Jean, Homer is seen strangling Disney’s iconic character, Mickey Mouse.
Thousands of Firings Expected
Underscoring the looming human cost, Disney is taking on 15,400 Fox employees, while the smaller new Fox Corp. will keep about 7,000. Last August, executives at Burbank, California-based Disney said they’ll achieve their targeted savings over two years, with the U.S. operations bearing the brunt early on. The Hollywood Reporter said last month that 4,000 jobs will be lost.
This sale kind of represents the end of an era for Rupert Murdoch, the 88-year-old media mogul who steered the Fox studio for nearly four decades.
Until early Wednesday morning, the biggest piece of Murdoch’s fortune was his stake in 21st Century Fox. His 17% stake in the company was worth about $13.3 billion. Now he got one third of a share of Fox Corp. for each share of 21st Century Fox he owned. In addition, Murdoch had the option of swapping his 21st Century Fox shares into either a portion of a Disney share (trading at $107 a share) or $51.57 cash per share.
Streaming as a Huge Game Changer
Over the last four years, Disney stock has not rewarded the long-term shareholders well enough to get excited about its future prospects mostly underperforming other Dow Jones stocks.
Streaming is likely to be a game-changer for Disney stock. Iger is going all in on streaming. In the wake of the FOX deal, Disney’s equity position in Hulu will rise to 60%.
JPMorgan’s Alexia Quadrani predicts that the service could attract as many as 50 million subscribers by the end of next year and eventually surpass Netflix. If she’s right, Disney stock would be boosted by a notable increase of the company’s recurring revenues.