Morningstar

Can Disney Fend Off New Players With Fox Deal?

The deal is more likely than not to gain regulatory approval, but the acquisition of Fox's regional sports networks by the owner of ESPN could be a sticking point.

Securities In This Article
AT&T Inc
(T)
Comcast Corp Class A
(CMCSA)
The Walt Disney Co
(DIS)

We are raising our fair value estimate for Fox to $43 from $35. Our new fair value estimate is probability weighted with a 75% chance that the merger closes. We currently value the combined entity at $46 per share, which represents 0.2745 shares of Disney at our standalone Disney fair value estimate of $130, plus our estimated $10 fair value estimate for the remaining stub company.

We are maintaining our fair value estimate for Disney at $130 as we believe the cost of acquiring the Fox assets will be offset by the revenue generated and cost savings. We think the chances of a competing bid for the Fox assets from

Disney is purchasing the Fox television and movie studios, cable entertainment networks including FX, regional sports networks, its 30% stake in Hulu, and the international assets including 39% of Sky. Fox would continue to own the broadcast network, Fox News, FS1, the Big 10 network, and its owned and operated local affiliates. We believe the deal would strengthen the already formidable production studios at Disney while better positioning the firm to compete against new entrants into media. For Fox, the Murdochs are making a bet that live sports and news will be the main differentiators in broadcast and pay TV.

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About the Author

Neil Macker, CFA

Senior Equity Analyst
More from Author

Neil Macker, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers media/entertainment and video game publishers.

Before joining Morningstar in 2014, Macker was a senior equity research associate for FBR & Co., where he covered the telecommunications services sector. Previously, he was an associate equity analyst for R.W. Baird and completed the summer associate rotational program at UBS Investment Bank. Before attending business school, Macker held analytical roles at Corporate Executive Board and Nextel.

Macker holds a bachelor’s degree from Carleton College, where he graduated cum laude, and a master’s degree in business administration from The Wharton School of the University of Pennsylvania. He also holds the Chartered Financial Analyst® designation.

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