FOXA and DIS Transaction Considerations - Pivotal Research

In this note we review the following considerations related to a potential transaction between Disney and Fox includingMarket concentration among content packagers would be increased but the market for premium video remains relatively fragmentedAdvertising market impact is probably limited as the combined entity would still be smaller in the US than NBCU and ViacomIf Disney and Fox avoid competing with each other for sports rights they may benefit but still have to compete with Comcast CBS ATampampTTime Warner Facebook Google Amazon and othersDisneyamp8217s directtoconsumer content distribution acquisitions potentially help establish a portfolio of approachesWhile the stub of Fox may lose scale and related efficiencies with the transaction it may benefit from focus financial leverage and changes to US media ownership rulesInternational exposure is likely positive for Disney the loss of international exposure is negative for FoxManagement succession resolution would be positive for DisneyMargin erosion is still likely to occur on an ongoing basis for the combined entityFurther details around these issues follow in the remainder of this reportVALUATION We value companies on a DCF basis Key variables driving valuations across the agency holding companies include longterm costs of capital ranging from 115 for Disney to 130 for Viacom with other companies in the peer group at 120 to 97 for Disney Longterm growth rates range from 35 for Viacom to 50 for DisneyRISKS Risks to companies in the sector include the hitdriven nature of video production threats to TV advertising and a pay TV slowdownFULL REPORT INCLUDING RISKS AND DISCLOSURES CAN BE FOUND HERE FOXDIS 121317pdfThe opinions and points of view expressed in this content are exclusively the views of the author andor subjects and do not necessarily represent the views of MediaVillagecomMyersBizNet Inc management or associated writers amp160amp160amp160

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FOXA and DIS Transaction Considerations - Pivotal Research

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