An earlier headline in this article incorrectly stated that Walt Disney Co’s board had approved an acquisition of 21st Century Fox Inc.’s assets. Instead, shareholders voted and approved the purchase Friday. The error has been corrected.
The Walt Disney Co. and 21st Century Fox Inc. shareholders approved a $71.3 billion deal on Friday that will place some of Fox’ most-coveted entertainment assets into the Mouse House’s already-formidable content arsenal.
The approval came after months of uncertainty, with Comcast Corp. CMCSA, +0.95% making an unsolicited $65-million cash bid in June, forcing Disney DIS, -0.78% to raise its initial $52.4-billion stock offer to $71 billion in cash and stock. Last week, Comcast dropped its pursuit of the assets, saying it would now focus on its bid for European pay-TV company Sky PLC SKY, -0.13% leaving Disney in the clear. With the deal, Disney will acquire the Twentieth Century Fox TV and film studios, cable networks including FX and National Geographic Channel, Star India, a sizable stake in Sky PLC and majority control of streaming service Hulu.
But now that the big vote is out of the way, Disney still has to address several big-ticket items.
Fox FOXA, -0.51% currently owns 39% of Sky and has been engaged in a bidding war with Comcast for the remaining 61%. The latest bid came earlier this month when Comcast made an offer valuing Sky at $34 billion, 5% higher than Fox’s most recent bid.
Disney will get Fox’s stake in the European pay-TV giant in the acquisition deal, and the companies will have to decide whether to pursue acquiring the rest of Sky, or let Comcast win this one.
Fox’s current bid for Sky would add $19.5 billion to Disney’s acquisition costs, BTIG analyst Rich Greenfield estimated in a note earlier this month. Disney has said each increase of £1 in the Sky offer would add $1.5 billion of extra debt, and $60 million in annual interest costs.
But the cost for what Disney Chief Executive Robert Iger called a “real crown jewel” shouldn’t be a deterrent, some analysts say.
“While it is certainly possible that Fox (and in turn, Disney) is going to walk away from Sky and not match/exceed Comcast’s offer, it does feel hard to believe,” Greenfield wrote. “Why give up, when the overall cost differential is effectively 1.1% to Disney?”
At the same time, some investors may prefer Disney walk away from Sky.
“It’s a lot on their plate,” said analyst Daniel Ives of GBH Insights. “From an investors’ perspective, integrating 21st Century Fox is front and center, and that’s already a lot of work.”
Part of that integration includes Hulu, of which 21st Century Fox, Walt Disney and Comcast each own 30%. AT&T T, +2.41% owns the remaining 10% through its recent acquisition of WarnerMedia, formerly Time Warner.
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When the Disney-Fox deal is finished, Disney will own 60% of the streaming service, giving it majority control. The question will be how Disney integrates this new asset with its own native streaming service that is set to launch in 2019, Ives said.
There is also a possibility Disney will eventually try to acquire Comcast’s share of Hulu, though Ives said it’s likely Disney will focus on the nearer-term goal of integrating its new assets.
“Now is when the hard work begins,” he said.
“Integrating these assets successfully, building a content and streaming ecosystem that can really stand on its legs and compete with the likes of a Netflix and Amazon in the coming years is key to this acquisition,” he said, adding: “That’s what shareholders are focused on.”
Shares of Fox have shot up 31.2% so far this year, while shares of Disney have gained 5.2%. The S&P 500 SPX, -0.66% has gained 5.9% and the Dow Jones Industrial Average DJIA, -0.30% has gained 3.4%.
