Using the Case Study Notes, in 2-3 bullet points, assess the conceptual value of

potential synergies (cost and revenue) in the merger of the Fox assets into Disney.

Case Study Notes 21.922 46.7% Media Networks PECP 36.5% 41.1% Companies grow organically by increasing sales of their prod negatively by regulators as both companies produce and dis- ucts or services to existing and new customers. Organic growth tribute films and television shows. A merger would reduce the can be expensive, arduous, and time consuming. Instead of number of major studios from six to five. But the recent and growing organically, companies may grow by merging their powerful emergence of new studios like Netflix and Amazon operations with another company or acquiring assets from convinced regulators that film and television production was another enterprise. a contestable market. Mergers and acquisitions, commonly called M&A, tends to Disney, despite being a media powerhouse in its own right, move in cycles. When interest rates are low and market valu- saw the merger with Fox as attractive as well as essential. The ations are high, the M&A market is very active. The converse success of Netflix producing its own content and distributing it is also true. through its proprietary streaming platform caught Disney unpre- Most principles of finance texts and courses only cover M&A pared. Buying Fox enabled them to control the Hulu streaming at a superficial level. This case is intended to supplement such service and gain essential technology, management, and lead- coverage. Use the data provided in this case and additional infor- ership experience to develop their own streaming services. mation acquired through the Bloomberg Terminal to answer the case questions. HOW DISNEY MAKES MONEY Disney has four operating segments: Media Networks, Parks, MERGER CLASSIFICATION Experiences & Consumer Products, Studio Entertainment, and In a broad sense, mergers and acquisitions can be classified as Direct-to-Consumer & International. The table shows the pro- horizontal or vertical. portion of Disney's total revenues and operating income that A vertical merger increases a company's operating exposure come from each segment. to its value chain, which is composed of the whole process of producing, selling, and distributing the company's products. A Disney Segment Revenues and Operating Income horizontal merger or acquisition expands the breadth of a com- All data from Fiscal Year 2018 in Mwlons, Except Percentages pany's primary market. Revenues of Total Operating Income % of Total Let's use the automobile industry to help differentiate between vertical and horizontal. Ford Motor Company (Ford) 24,701 assembles vehicles. If Ford acquires Carlex Glass, which pro- Studio Entertainment vides glass for some of its vehicles, the acquisition would be a vertical merger because Ford would be acquiring a com- pany within the automobile value chain. The same would be true if Ford purchased a plastic, rubber, aluminum, or leather company. Source: The Walt Disney Company Annual Report (10-K) In November of 1989, Ford offered to purchase all the shares of the British automobile manufacturer, Jaguar. This was a hor- izontal merger since it increased the breadth of Ford's primary market by adding a range of luxury automobiles it did not offer. In March 2008, Ford sold Jaguar to Tata Motors of India. CONSOLIDATED MERGER INCOME STATEMENT On 14 December 2017, the Walt Disney Company announced an agreement to acquire 21st Century Fox for $52.4 billion in stock. Six months later on 13 June 2018 Comcast offered $65 billion in cash for the same assets Disney agreed to purchase. A week later Disney increased its bid to $71.3 billion. Disney and Fox share holders approved the merger by 27 July 2018. Disney did not buy all of Fox's assets. Included were 21st Century Fox's film and television studios, the Fox Networks Group, and stakes in National Geographic Partners, Asian sat- ellite TV group Star, and an additional 30% interest in Hulu, bringing its total interest to 60%. A merger between Disney and Fox would normally be viewed Bloomberg LP. 7.338 6,096 3,004 -738 38.8% 19.1% 16.7% 10,065 3,414 -669 DCTI Eliminations Total 5.7% -10 59.434 15,689