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Money News

Mighty Mouse: What’s Behind Disney’s Purchase of 21st Century Fox

December 19, 2017

  • Disney will buy 21st Century Fox’s assets in a $52B deal.
  • Its aim is to compete with streamers like Amazon, Facebook and Netflix.
  • The merger must first be approved by regulators.
2 min read

The mouse is roaring.

The Walt Disney Co., owner of famed theme parks, Mickey Mouse, ESPN and the Star Wars franchise, will purchase portions of 21st Century Fox, one of the world’s most famous movie and television studios, in a merger worth $52 billion.

Taking on streaming giants

The deal, announced Thursday, is likely to reshape the traditional entertainment business, and is seen by experts as an attempt by Disney to go head to head with the numerous, new content-streaming services offered by Apple, Amazon, Netflix, Facebook and others.

It is also an acknowledgement by old-guard entertainment companies with deep roots in Hollywood that they must compete more effectively against a new crop of upstarts from Silicon Valley who deliver entertainment directly to consumers homes, according to analysts.

“The acquisition of this stellar collection of businesses from 21st Century Fox reflects the increasing consumer demand for a rich diversity of entertainment experiences that are more compelling, accessible and convenient than ever before,” Robert A. Iger, chairman and chief executive officer of Disney, said in a statement.

What’s inside the deal?

Disney will purchase 21st Century Fox’s film and television studios, cable entertainment networks and international TV businesses.

The transaction includes some of Fox’s most popular franchises, including The Simpsons, X-Men, and Avatar. Disney will also acquire National Geographic, FX Networks, and Fox Sports Regional Networks.

Interesting to note: 21st Century Fox will separate out its Fox Broadcasting network and stations, Fox News Channel, Fox Business Network, FS1, FS2 and the Big Ten Network. It will take these assets and turn them into a new public company, in a process called a spinoff.

Fun fact: A spinoff is when a company takes some of its assets and turns them into a separate business, with separate stock. Company executives usually create spinoffs when they think these assets would perform well as a standalone business, rather than as a part of a larger enterprise. A recent example of this tactic is eBay’s spinoff of payments processor Paypal in 2015. McDonald’s also spun off burrito giant Chipotle in 2006.

Iger will stay on as CEO of the combined company until 2023, delaying his retirement by four years, according to the New York Times.

Disney will now have a controlling stake in the popular content streaming service Hulu. (Previously Fox and Disney owned shares of the company, which will now be combined. Comcast owns the remainder of Hulu.)

More about 21st Century Fox

21st Century Fox, which is controlled by the Australian-born media tycoon Rupert Murdoch, is also one of the most consequential movie studios in the world.

Fun fact: A spinoff is when a company takes some of its assets and turns them into a separate business, with separate stock.

Launched in 1935, it produced the films of 20th century icon Marilyn Monroe, released the Sound of Music in 1965, and turned the three-dimensional computer enhanced film Avatar into one of the biggest money-makers in recent times, grossing $2.7 billion.

21st Century Fox was spun off from Murdoch’s news business, called News Corp., in 2013.

Stock price

News of mergers often affects stock price. In early morning trading on Thursday, the share price of 21st Century Fox increased 2.4%, while Disney’s shares rose 0.5%.*

Not a done deal yet

The deal must first be approved by regulators. The Department of Justice is currently challenging a similar proposal by telecommunications company AT&T and Comcast, another big player in the media industry, to merge.

By Jeremy Quittner
Jeremy Quittner is the senior writer for Stash.

*Source: Yahoo Finance.

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