Disney buys Fox Family
$3B deal gives Disney programming, cable network reaching 81M homes
NEW YORK (CNNfn) - Walt Disney Co. is buying Fox Family Worldwide from News Corp. and Haim Saban for $3 billion, plus the assumption of $2.3 billion in debt.
The cable network reaches about 81 million cable and satellite television subscribers in the United States, making it Disney's second most-viewed cable station, and giving it a strong cable platform for its broadcast and other family-oriented content.
Shares of Disney (DIS: down $0.04 to $26.96, Research, Estimates), a component of the Dow Jones industrial average, were little changed in Monday morning trading following the announcement.
ESPN, the sports network 80 percent owned by Disney, reaches 82.1 million homes, while the children-oriented Disney Channel reaches 70.9 million homes, and its animated Toon Disney reaches only 22.2 million homes.
Disney CEO Michael Eisner said it is nearly impossible to build or buy a network with Fox Family's reach today.
"These assets are a perfect fit for our company," Eisner said in a call with analysts. "We paid appropriately for a rare asset."
Disney executives believe they can save $50 million annually in costs through cutting sales, marketing and other back-office costs and positions, and that improved ratings, ad sales and the cost savings will bring allow within two years to double the $150 million they say Fox Family already generates annually in earnings before interest, taxes, depreciation and amortization.
"While Fox Family Worldwide has many fine assets, in our estimations they are still diamonds in the rough," said Tom Staggs, Disney's chief financial officer. Staggs said that Disney will have no problems financing the deal, and it expects to quickly refinance much of the debt it is taking on as part of the deal. Staggs said that after the doubling of Fox Family's EBITDA, he believes the company will see 20 percent annual growth in that key measure going forward.
The network will be renamed ABC Family after Disney's broadcast network.
The deal is expected to close in three-to-four months. Disney executives said the network will start shifting to content from ABC and various Disney properties and that about half the current programming will be replaced within two years. Some ABC shows may be rebroadcast on the channel later in the week from when they originally air, for example.
The channel will still include some of its current programming, such as "The 700 Club," a nightly program from religious broadcaster Pat Robertson. And Disney is acquiring some other programming assets as part of the deal.
For example, the deal also gives rights to show Major League baseball games, including first round playoff games, now part of Fox Entertainment Group's rights package. Robert Iger, Disney's president, told analysts that the purchase of the rights for two regular-season games a week was required by Fox as part of the deal, but that Disney believes it will be able to make a profit on the first-round playoff games.
"We believe there will be value there. We believe they are good programming," he said, pointing out that ESPN carried some playoff games in the past and that the network is better positioned to sell ads on those games and to cross promote the games on ESPN and ABC Sports programs.
Disney also gets rights to 6,500 episodes of animated and live-action children's and family-friendly programming from the Saban Library and Entertainment Productions business, owned by Fox Family Worldwide co-owner Haim Saban. Those programs include Might Morphin Power Rangers, Digimon, Beattleborgs and Spiderman.
The deal also gives Disney 76 percent ownership of Fox Kids Europe, which reaches 24 million subscribers there, as well as ownership of Fox Kids channels in Latin America, which have 10 million subscribers.
Eisner said the deal came together at a recent entertainment conference and involved negotiations between himself, News Corp. CEO Rupert Murdoch, Fox Family co-owner Saban and other top executives of the companies.
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The deal, widely reported over the weekend, gives News Corp. (NWS: up $0.69 to $36.19, Research, Estimates) additional resources as it negotiates to buy DirecTV satellite television system from Hughes Electronics (GMH: up $0.32 to $19.40, Research, Estimates), a unit of General Motors Corp. (GM: down $0.33 to $64.67, Research, Estimates).
News Corp. is seen as the only bidder left for DirecTV after news last week that EchoStar (DISH: down $0.69 to $28.42, Research, Estimates) had pulled out of the bidding for the satellite television operation.
News Corp. is also awaiting final regulatory approval for its $5.4 billion purchase of 10 television stations owned by Chris-Craft Industries Inc. (CCN: up $0.65 to $70.15, Research, Estimates)