MUMBAI: After the blockbuster acquisition of 21st Century Fox by The Walt Disney Company, the former has announced that it will spinoff into a new brand Fox’ that will seek to replicate its own success in the newly focussed verticals of live news and sports brands.
Using fiscal 2017 as a base, the new Fox is expected to have annual revenue of $10 billion and EBITDA of $2.8 billion. The company will have an investment grade balance sheet conservatively levered with a maximum of $9 billion of new gross debt or under 3 times net leverage on day one.
Fox will hold iconic branded properties Fox News Channel, Fox Business Network, Fox Broadcasting Company, Fox Sports, Fox Television Stations Group, and sports cable networks FS1, FS2, Fox Deportes and Big Ten Network (BTN). It will also include the company’s studio lot in Los Angeles and equity investment in Roku.
This new entity will own the top cable news channel in the US and the most-watched business news channel, as well as a station group, which is present in nine out of the 10 largest metro areas. Under sports, it holds the rights for NFL, MLB, World Cup Soccer and NASCAR.
Fox will have a strong financial profile, supported by peer-leading growth and differentiated free cash flow generation, and will be positioned to continue to deliver consistent growth driven by affiliate rate increases, retransmission growth and strong advertising demand for its live content and entertainment product.
21st Century Fox executive chairman Rupert Murdoch said: “The new Fox will draw upon the powerful live news and sports businesses of Fox, as well as the strength of our broadcast network. It is born out of an important lesson I’ve learned in my long career in media: namely, content and news relevant to viewers will always be valuable. We are excited by the possibilities of the new Fox, which is already a leader many times over.”
The remaining business of the company has been combined with Disney in a $52.4 billion acquisition including all its film and TV studios, cable entertainment networks and international TV business. Disney will also acquire FX Networks, Fox Sports Regional Networks, Fox Networks Group International, Star India, and 21st Century Fox’s interests in National Geographic Partners, Hulu, Sky, Tata Sky and Endemol Shine Group.
Murdoch said that the deals are crucial to paving way for a new Fox and a better Disney. “We have always made a commitment to deliver more choices for customers; provide great storytelling, objective news, challenging opinion and compelling sports. Through today's announcements, we are proud to recommit to that promise and enable our shareholders to benefit for years to come through ownership of two of the world's most iconic, relevant, and dynamic media companies. They will each continue to be leaders in creating the very best experiences for consumers.”
The spin-off transaction will be taxable to 21st Century Fox, but not to its shareholders. The new Fox will receive a step-up in its tax basis commensurate with the amount of the corporate tax relating to the spin-off that will generate annual cash tax savings over the next 15 years.
Following the spin-off, Fox expects to continue to pay shareholders a strong regular dividend, with the initial rate to be determined prior to the completion of the spin-off. Prior to completion of the spin-off, new Fox will pay an $8.5 billion cash dividend to 21st Century Fox, representing an estimate of such tax liability. If the final tax liability of 21st Century Fox is less than such amount, the first $2 billion of that adjustment will be made by a net reduction in the amount of the cash dividend to 21st Century Fox from new Fox. The amount of such tax liabilities will depend on several factors, including tax rates in effect at the time of closing as well as market values of Fox following the closing.
Upon closing of the spin-off transaction, 21st Century Fox’s shareholders would receive one share of common stock in new Fox for each same class 21st Century Fox share currently held. Following the separation, new Fox would maintain two classes of common stock: Class A Common and Class B Common Voting Shares. Details of the spin-off transaction distribution will be included in the registration statement that will be filed with the Securities and Exchange Commission.
As part of the definitive agreement with Disney announced today, 21st Century Fox shareholders will receive 0.2745 Disney shares for each 21st Century Fox share in the merger. The per share consideration is subject to adjustment up or down for certain tax liabilities arising from the spinoff and other transactions related to the acquisition. Terms of the transaction call for Disney to issue approximately 515 million new shares to 21st Century Fox shareholders, representing approximately a 25 percent stake in Disney on a pro forma basis. The transaction values the merged 21st Century Fox business at $28 per share using a reference Disney share price of $102 and at nearly $30 per share based on Disney’s closing share price on December 13, 2017. This equates to a total enterprise value of approximately $69 billion.
The merger is subject to customary conditions, including regulatory and shareholder approval.
Combining with Disney are 21st Century Fox’s critically acclaimed film production businesses including Twentieth Century Fox, Fox Searchlight and Fox 2000, which together offer diverse and compelling storytelling businesses and are the homes of Avatar, X-Men, Fantastic Four and Deadpool, as well as The Grand Budapest Hotel, Hidden Figures, Gone Girl, The Shape of Water, and The Martian– and its storied television creative units, Twentieth Century Fox Television, FX Productions and Fox21, who have brought The Americans, This Is Us, Modern Family, The Simpsons, and so many more hit TV series to viewers across the globe.
New Fox Assets
Fox News Channel (FNC): 24-hour all-encompassing news service dedicated to delivering breaking news as well as political and business news. FNC has been the number one cable news channel in the country for 63 straight quarters, and more recently has been the top basic cable network. FNC is available in approximately 90 million homes and dominates the cable news landscape, routinely notching the top ten programs in the genre.
Fox Broadcasting Company (FOX): Home to some of the highest-rated and most acclaimed series on television as well as the most sought after sports properties, it is viewed by nearly 100 million households each month, airing 15 hours of primetime programming a week, as well as major sporting events and Sunday morning news. Through the Fox Now app, Fox viewers can watch full episodes of their favourite Fox shows on a variety of digital platforms, while enjoying enhanced interactive and social capabilities around those shows.
Fox Business Network (FBN): Financial news channel delivering real-time information across all platforms that impact both Main Street and Wall Street, Fox Business Network has been the number one business network for four consecutive quarters. FBN launched in October 2007 and is available in more than 80 million homes in major markets across the United States. The network has bureaus in Chicago, Los Angeles, Washington, DC and London.
FOX Television Stations Group: One of the nation's largest owned-and-operated network broadcast groups, comprising 28 stations in 17 markets and covering over 37 per cent of US television homes. This includes a presence in nine out of the 10 largest metro areas in the US including seven duopolies in the top 10 markets: New York, Los Angeles, Chicago, Dallas, San Francisco, Washington, DC and Houston; as well as duopolies in Phoenix, Minneapolis, Orlando and Charlotte.
FS1 and FS2: FS1 is a popular sports cable network launched in 2013 in approximately 90 million homes boasting nearly 5,000 hours of live event, news and original programming annually. FS1 has several pillar sports: college basketball and football, MLB, NASCAR, NFL (ancillary programs), international soccer, Bundesliga, UFC, Premier Boxing Champions (PBC) and USGA. Major events televised on FS1 include the US Open, MLB Postseason, the FIFA 2018 and 2022 World Cup and the FIFA Women’s World Cup in 2019. FS2 was founded in 2013 and is focused on extreme sports, including skateboarding, snowboarding, wakeboarding, motocross, surfing, mixed martial arts, BMX and FMX. FS2 is available in approximately 50 million homes.
Big Ten Network: The first internationally distributed network dedicated to covering America’s most storied collegiate conferences. Covering over 1,000 sporting events each year, including football, basketball, Olympic sports and championship events and award-winning original programming, in-depth studio analysis and classic games. The network is in approximately 50 million homes across the United States and Canada, including carriage by all the major video distributors.
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