The bulk of Rupert Murdoch’s 21st Century Fox Assets has led Disney's Bob Iger to offer a mouthwatering price.
This is how the deal works: Disney and Fox media businesses are a roughly similar size, however, Disney has a much bigger market valuation of $US162.5 billion, but that is fuelled by earnings on Disney's retail and interactive segment and its theme parks which supplement the earnings.
Last years’ report revealed that Fox had $US7.43 billion in operating income before tax, depreciation and amortization from its cable networks, television and filmed entertainment divisions, before other items. On the other hand, Disney reported $US8.9 billion in EBITDA from its equivalent divisions.
The major difference between the two is the huge profits that Disney earned from its blockbuster movies. Fox earns 75 percent of its profits from its cable networks. Before news of the sale talks broke on the 3rd of November, 21st Century Fox's B shares were trading at $US24.43 and the group had a market valuation of $US45.8 billion. Last week, the stock had jumped 31.7 percent to $US60.9 billion.
Disney will be expected to pay a big premium on top of that. Disney's bid values Fox at around $US40 a share, almost twice the price they were trading at in early November. This values Fox as it is now at $US74 billion. If add in the $US19.9 billion in debt that Fox is carrying, the total enterprise value in the bid comes to $US94 billion.
It’s expected that Disney will issue shares worth between $US52.5 billion and $US55.4 billion. According to the release, only the new Fox company will have revenue of $US10 billion and EBITDA of about $US2.8 billion.
It’s also estimated that Fox shareholders will receive 0.257 Disney ordinary shares plus one share in the Fox Company, in return for each of their 21st Century Fox stock. Fox shareholders will end up with about 25.4 per cent of Disney's stock.
Disney will be contracted to continue with Fox's bid for the rest of Sky in the UK, which will cost it $US15 billion cash, after which it will consolidate the $US16.6 billion debt that Sky already holds.
So Disney could easily end up with $US70 billion of debt.
The assets that Murdoch will retain from 21st Fox is chiefly the Fox television stations and network, which earned $744 million in operating earnings last year; Fox News Channel, which earned an estimated $US1.5 billion; and Fox Sports One, Fox Sports Two and Big Ten Network, part of the web of US and international sports networks which together earned an estimated $US1.6 billion last year.