Closing time is finally at hand for the $71.3 billion Disney-Fox combination, which will see assets like the fabled Fox film and TV studio, FX Networks, National Geographic and a 30% stake in Hulu move to Disney. The transaction is scheduled to become official just after midnight ET — 12:02 AM, to be exact — on Wednesday.
The merger is one of the most consequential in Hollywood history. Among other things, it brings an end to the colorful run of 20th Century Fox as a stand-alone studio and adds Avatar, X-Men and Deadpool to the Disney library ahead of the fall launch of the direct-to-consumer Disney+ streaming service. Disney, which shared control of Hulu with Fox and NBCUniversal, will now have a 60% majority stake and is in talks with WarnerMedia to acquire its 10% share.
Fox Shareholders Favor Getting Cash Over Stock When Disney Deal Closes
As closely watched as this transaction has been, it’s easy to lose track of all the comings and goings, so we put together the following list of questions and answers as a road map for the consolidated era.
Q: What are the terms of the deal?
A: The overall compensation agreed to last summer called for 50% cash and 50% stock, with a “collar” ensuring that shareholders get at least $38 per share in value if the average Disney stock price at closing is between $93.53 and $114.32. (It entered the final hour of today’s trading at about $112.) Shareholders in 21st Century Fox — the entity giving way to Fox Corp. — will own a pro-forma stake in the up-sized Disney of between 17%-20%.
Q: How many layoffs will result?
A: Because it is what’s known as a “horizontal” merger, combining similar functions at several units of both companies — as opposed to a “vertical” merger between disparate partners like AT&T and Time Warner — job losses are expected to be significant. Disney has not offered any of its own guidance, except to forecast about $2 billion in cost savings by 2021. Most Wall Street and industry analysts expect thousands of positions to be eliminated due to overlaps in distribution, marketing and a range of other disciplines. Given Disney’s total global head count of about 200,000, the losses will be a small fraction of the total, but many of those departing will have senior-level experience. The very transformation of the entertainment landscape that prompted the merger could also mean a longer period of transition for many of the affected veterans.
Between the exits at Disney-Fox and those under way at a restructuring WarnerMedia (which parted ways recently with long-tenured HBO and Turner bosses Richard Plepler and David Levy, respectively), there will be an available pool of executive talent unlike any seen in Hollywood for some time.
Q: What will be left of Fox?
A: Fox Corp., as the remaining stand-alone company is now known, controls the Fox broadcast network, Fox Sports, a portfolio of local TV stations, the MyNetworkTV programming block, the Fox News Channel, Fox Business Channel, and sports cable networks FS1 and FS2. The new company began trading earlier today on the NASDAQ, officially beginning its new chapter.
Q: What about the regional sports networks? Who gets those?
A: A consent decree agreed to last August by Disney and the U.S. Department of Justice predicates U.S. regulators’ approval on the divestiture of the 22 regional sports networks Disney was in line to acquire from Fox. Because it owns ESPN, Disney could not also control the Fox RSNs for anti-competitive reasons. The DOJ set a different timetable on the divestitures that means they can go past the closing date of the main Disney-Fox transaction. Fox declared last year that it does not intend to re-acquire the RSNs, an end run that likely would not have pleased regulators had it been attempted. Comcast, as another sports power that owns RSNs, similarly would not likely have gained approval to make a bid. The largest RSN in the portfolio, YES, was recently acquired by a consortium including its current minority owner the New York Yankees, along with Amazon and Sinclair Broadcast Group. Bidders for the remaining RSNs include Sinclair, Major League Baseball, the Ice Cube-fronted BIG3 basketball league, Liberty Media and a host of private equity players.
The acquisition price of YES was estimated at $3.5 billion, a bit lower than many forecasts and calling into question the initial outlook that the whole portfolio would fetch north of $15 billion.
Q: Who will the new power players be in terms of Disney management? Who are the key leaders at Fox?
A: Disney’s top-level corporate officers — led by CEO Bob Iger — are remaining intact. But four arriving executives from Fox will have significant portfolios in several New Disney units: Peter Rice, John Landgraf, Dana Walden and Gary Knell. Disney film chief Alan Horn, the architect of a record-setting run of releases in recent years, will keep his role, with newcomers from the Fox side including Emma Watts, Nancy Utley and Steve Gilula. Stacey Snider, a seasoned studio presence who headed Fox’s film efforts, has announced she will be stepping down when the deal closes.
At Fox Corp., Lachlan Murdoch is chairman and CEO. His brother, James Murdoch, who led 21st Century Fox for several years, has launched an investment fund, which is apt to be his initial focus after the deal closes. Paterfamilias Rupert Murdoch is executive chairman of Wall Street Journal parent News Corp., co-chairman of Fox Corp. and a soon-to-be major Disney shareholder. He is expected to remain active across all fronts in the newly configured era, even at age 88.
Q: How will the merger affect market share in film and television?
A: Film is the area of greatest impact. If this year ends up following the 2018 numbers, the combined Disney-branded studio would control an eye-popping 35% of the U.S. box office. In the awards arena, the consolidation is also noteworthy. At last month’s Oscars, trophies went to 11 winners spread across Disney, Fox, Fox Searchlight and National Geographic. The next top winner among studios was Universal with, five including one from specialty sibling Focus Features.
TV-wise, the needle won’t move quite as much, given that the Fox broadcast network is staying behind at Fox Corp. The addition of FX Networks and National Geographic definitely adds muscle to the cable portfolio, of course, and strengthens its capabilities in terms of development and production. While Disney’s cable holdings have long been dominated by ESPN, the addition of both FX and Nat Geo significantly rounds out the portfolio.
Q: Does this change the influence of the Murdoch family on the media landscape?
A: In a word: no. In accepting Disney’s offer over Comcast’s, the Murdochs — who own 17% of Fox shares — made
$2.6 billion more due to tax liabilities associated with the Comcast offer. The family’s exact stake in post-deal Disney won’t be finalized until the official close, but at current stock price levels — which are remarkably close to where they were when the merger plan was finalized — they will still be the largest shareholder in the new company.
Also, while Fox Corp.’s footprint is smaller, it has more coherent, cable TV-focused holdings. That will likely only enhance the clout of Fox News and minimize the cloud created by talent at the long-adjacent film and TV studios (e.g., Modern Family creator Steve Levitan) who oppose Fox News.
Q: What about outside of the U.S.? What kind of global impact will Disney’s new structure have?
A: Regulators outside the U.S. raised concerns about the deal, though ultimately they assented to it after extracting certain concessions. In Brazil, Disney agreed to divest of Fox Sports and also certain sports rights in exchange for approval for the merger. In Europe, the company said it would sell off factual channels under the A+E joint venture. Film-wise, as in the U.S.. the combined entity will cast a much larger shadow. For example, it will enjoy greater access in China, where only a certain number of films are permitted to be released. National Geographic’s breakout documentary Free Solo is about to come out in China, occupying one of only a few dozen annual release slots allowed under the country’s tight controls. Other key holdings transferring to Disney include Star India and stakes in global powerhouses like Endemol Shine.
Q: What will change at Hulu?
A: Under Disney’s majority control, the streaming platform first launched in 2007 will become the third prong in the company’s attack on the streaming market. Unlike the family-friendly Disney+, launching late in the year, or the sports-centric ESPN+, Hulu will likely become a vehicle for older-skewing and edgier content, from Deadpool to Fox Searchlight titles, on top of current and future Hulu originals. In January, Hulu announced 48% year-over-year subscriber growth and now has more than 25 million, and that’s all in the U.S. Iger has told Wall Street that Disney’s management team will meet with the Hulu board and minority owner Comcast after the close to advocate for increased content investment and international expansion, both measures aimed at keeping the company competitive with Netflix. Hulu’s live-TV skinny bundle is another secret weapon. Less than two years after launching, it has surpassed 1 million subscribers in the U.S. and its momentum contrasts with the sluggishness of more mature skinny offerings from DirecTV and Dish. Leadership by a single majority owner — a change from the multi-company consortium that has long been steering the ship — could open up an important new direct-to-consumer avenue for Disney.
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