Disney and Fox Shareholders Approve Deal, Ending Corporate Duel

The 20th Century Fox movie “Avatar,” along with films like “Titanic” and television shows like “The Simpsons,” will be owned by Disney under deal approved by shareholders on Friday.Credit20th Century Fox
By Edmund Lee and Brooks Barnes
July 27, 2018

One empire grows. Another shrinks.

In separate ballrooms at the Hilton Hotel in Midtown Manhattan on Friday morning, shareholders of the Walt Disney Company and 21st Century Fox agreed to a $71.3 billion purchase plan that gives Disney the bulk of Rupert Murdoch’s media empire, substantially altering the entertainment landscape.

Regulators in more than a dozen countries must still give their approval. But the shareholder votes brought to a close a six-month corporate showdown, waged across two continents by Disney and Comcast, for supremacy in the rapidly changing media business. Mr. Murdoch’s trove represented a once-in-a-lifetime opportunity to gain the bulk needed as a counterattack against the tech giants that have aggressively moved into Hollywood.

“Avatar,” the “X-Men” movies, “Titanic” and TV shows such as “The Simpsons” and “This Is Us” will now be owned by Disney. That adds to an already enviable content stockpile from divisions that include Lucasfilm, Marvel Entertainment and Pixar Animation Studios. The deal also gives Disney the cable networks FX and National Geographic; a controlling stake in the streaming service Hulu, which has more than 20 million subscribers; and Star, one of India’s fastest growing media companies.

Some people in Hollywood see the acquisition as the sad ending of an era. Disney is acknowledging that the future of television and movie viewing is online and this move could set off a wave of mergers in the film business, which has not seen significant consolidation since 1935, when 20th Century Pictures and Fox Film merged to form 20th Century Fox.
Disney’s chief executive, Robert A. Iger, has staked his legacy on this deal, and to gain control of Fox, he had to fend off an aggressive play by Comcast. Mr. Iger and Mr. Murdoch originally agreed to a deal in December. After months of maneuvering, Comcast, the Philadelphia-based cable giant, topped Disney’s original bid in June, but Mr. Iger returned almost immediately with a much higher offer that mixed cash and stock. Mr. Murdoch and the Fox board quickly accepted.

Comcast called it quits soon after and its chief executive, Brian L. Roberts, offered an olive branch of sorts by releasing a statement congratulating the two companies. Comcast, however, still plans to compete in a separate deal against Disney for control of the European TV broadcaster Sky.

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As Silicon Valley behemoths like Netflix, Amazon, Apple and Facebook have pushed into the entertainment world and attracted bigger audiences, old-guard media companies have responded by trying to secure as much gold-plated content as they can. And Disney, for one, will soon unveil a Netflix-style streaming service to deliver its shows and movies straight to viewers.

“One of the most exciting aspects of our Fox acquisition is that it will allow us to greatly accelerate our direct-to-consumer strategy,” Mr. Iger said when he announced the deal in December. "We believe creating a direct-to-consumer relationship is vital to the future of our media businesses, and it’s our highest priority.”
They aren’t the only ones. A month before Disney closed on Fox, AT&T bought Time Warner, which includes HBO and the Warner Bros. film and TV studios. CBS and Viacom have tussled over whether they should combine. Comcast is likely to make a play for something else in addition to trying to win Sky in Europe. And other studios and networks like Discovery, Sony Entertainment, AMC and Lionsgate are looking for opportunities. Verizon, Dish and Charter could also scout out possible mergers.

“Everyone has decided that the future is owning both the content and the distribution,” said Craig Moffett, a longtime media analyst.

At the Disney meeting, shareholders voted on one item. Disney’s final offer was made up of equal parts cash and stock — $35.7 billion in cash, 343 million shares — and Disney investors had to approve the issuing of those shares. The meeting lasted all of nine minutes. Disney said that voters controlling 68 percent of outstanding shares voted by proxy ahead of the meeting. Of those, 99 percent voted to approve. (There was a lone voice of dissent. When Alan N. Braverman, Disney’s general counsel, opened the floor for shareholder comments, one man stood up and muttered, “I think we are overpaying.”)

Despite the importance of the deal and the dramatic way it played out over many months, Mr. Iger and Mr. Murdoch did not attend the shareholder votes. Mr. Iger was on a previously scheduled overseas trip, and Mr. Murdoch similarly decided to keep a commitment in California. Mr. Murdoch’s sons, James Murdoch, Fox’s chief executive, and Lachlan, Fox’s executive chairman, also stayed away.
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To Disney, the Fox assets being acquired represent a once-in-a-lifetime opportunity to gain the bulk needed as a counterattack against the tech giants that have moved into Hollywood.CreditMark Ralston/Agence France-Presse — Getty Images
The Fox shareholder meeting took place in a much smaller ballroom on a subterranean level, with fewer than 60 people present. The meeting lasted less than 10 minutes. But near the end, a longtime shareholder, Philip Berman, stood up at the microphone and said, “Rupert’s dream is complete.”

The deal ends Mr. Murdoch’s reign over an entertainment empire he spent six decades building. He will become a significant minority shareholder in Disney and will continue to run his remaining businesses, which include Fox News, the Fox broadcasting network, the cable network FS1 and newspapers like The Wall Street Journal, The New York Post and The Sun in Britain.
“I want to thank all of our executives and colleagues for their enormous contributions in building 21st Century Fox over the past decades,” Mr. Murdoch said in a statement after the votes.

Lachlan, his elder son, will become chief executive of the Murdoch family’s remaining TV businesses, which are being collectively called New Fox. James will not join Disney and will leave his father’s company. His plans remain unclear, though he stands to make more than $1 billion in the Disney deal.

Disney must wait for regulatory approval before speeding ahead with its integration plans for 21st Century Fox — plans that include substantial layoffs. The deal received surprisingly speedy approval from United States regulators, but foreign governments must still sign off.

Analysts expect that Disney will clear those hurdles by early 2019.

American antitrust regulators approved the merger on the condition that Disney, which already owns ESPN, divest all of Fox’s 22 regional sports networks, which include channels like the Yankees’ YES network. Guggenheim Securities has estimated the value of the chain at roughly $22 billion.
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Robert A. Iger, Disney’s chief executive, fended off an aggressive bid by Comcast to close the deal for the bulk of Fox’s assets.CreditAndrew Gombert/European Pressphoto Agency
But finding a buyer willing to pay top dollar may be difficult. The regional sports networks are valuable because viewers watch games live, which appeals to advertisers. On the downside, the channels already command sky-high fees from cable distributors, limiting future growth.

“While on paper the assets should be attractive, a lack of bidders could drive a relatively lower valuation,” Doug Creutz, an analyst at Cowen and Company, wrote in a July 19 report.
Disney has had some recent setbacks with its existing businesses. Exhibiting rare vulnerability, Walt Disney Studios released two big-budget misfires — “A Wrinkle in Time” and “Solo: A Star Wars Story” — and forced out its longtime animation chief, John Lasseter, after employees complained about inappropriate workplace behavior. ABC in May suffered the meltdown of “Roseanne,” its biggest hit; Shonda Rhimes, ABC’s biggest hitmaker, decamped for Netflix.

Disney is expected to replace Ben Sherwood, who leads the Disney-ABC Television Group. Fox has a strong roster of candidates, including Peter Rice, president of 21st Century Fox. Mr. Rice is widely seen in Hollywood as a possible successor to Mr. Iger. Dana Walden, a co-chief executive of the Fox Television Group, may also join the Magic Kingdom. (Mr. Sherwood may receive another perch inside Disney.)

Mr. Iger said in a statement after the meetings that he was looking forward to “welcoming 21st Century Fox’s stellar talent to Disney and ultimately integrating our businesses to provide consumers around the world with more appealing content and entertainment options.”

The 21st Century Fox acquisition is Disney’s largest, surpassing its 1995 purchase of Capital Cities/ABC for $19 billion or roughly $31 billion in today’s money. That deal, which brought ESPN into the Disney fold, powered Disney for two decades. But the cable business is now in decline, and Mr. Iger is betting his legacy on repositioning Disney as a streaming giant that can compete with titans like Apple and Amazon. Mr. Iger believes that the Fox assets will supercharge that plan.

There is no guarantee, however, that he will pull off the herculean task of integrating Fox, which has a drastically different corporate culture.

And the clock is ticking: After delaying retirement multiple times, Mr. Iger is scheduled to depart in late 2021.