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Disney's Acquisition of Fox Is in the Final Innings

Danny Vena, The Motley Fool

The Walt Disney Company (NYSE: DIS) shook the media landscape in late 2017 when it announced its intention to buy the film and television assets of Twenty-First Century Fox (NASDAQ: FOX) (NASDAQ: FOXA). The combination would not only result in a TV and box office powerhouse, but it would also set the stage for Disney to be an even more formidable competitor by gaining a controlling stake in streaming service Hulu.

It's been a long road since the initial announcement. Let's take a look at a few recent developments and where things stand now for the House of Mouse.

Disney CEO Bob Iger on the left and Fox chairman Rupert Murdoch on the right.

Disney CEO Bob Iger (left) and Fox chairman Rupert Murdoch (right) inked a historic deal. Image source: Disney.

Awaiting final approval

Last week, reports emerged that Disney won the final approval from Brazilian authorities for its acquisition of the Fox assets. Brazil's antitrust regulator -- the Administrative Council for Economic Defense (CADE) -- approved the deal on the condition Disney sells the Fox Sports channel in the Latin American country, as well as other related sports programming. Disney will also be required to divest the broadcast rights to Libertadores Cup, a regional soccer competition. These moves are designed to "eliminate competitive concerns in the pay TV sports channel market," the regulator said. 

This follows a remarkably easy process in China, where the merger received unconditional approval back in November. This was an important geography for Disney, as China has the world's second-largest box office.

Disney is awaiting the go-ahead from authorities in Mexico, believed to be the last remaining country in the process. Consent has already been granted by the Federal Economic Competition Commission in Mexico but also requires a nod from the Federal Telecommunications Institute for final approval. The merger is expected to gain conditional approval after Disney divests certain sports rights or assets. As Brazilian regulators said, "In Latin America, the close dialogue between agencies in Brazil, Mexico and Chile resulted in a coordinated solution to the case."

A bigger slice

Reports surfaced last week that Disney was in active negotiations to acquire the 10% stake in Hulu owned by AT&T (NYSE: T), according to Variety. The streaming service is jointly owned by Disney, Comcast (NASDAQ: CMCSA), and Fox, with each owning 30%, in addition to AT&T's stake. 

AT&T had previously signaled it was interested in offloading its minority holding. At an analyst day late last year, AT&T CFO John Stephens cited the ownership as something the company would part with in order to pay down debt related to its recent Time Warner acquisition.

Disney has apparently communicated its interest in owning Comcast's portion of Hulu as well. Steve Burke, CEO of NBCUniversal, a division of Comcast, said the company isn't currently interested in selling. "Disney would like to buy us out," Burke said. "I don't think anything's going to happen in the near term."

A woman dressed in red, with a long white hood, in a scene from Hulu's

The Handmaid's Tale is one of Hulu's biggest hits. Image source: Hulu.

By eliminating some of the bureaucracy that comes from having multiple owners, Disney would be able to streamline the decision-making process and move Hulu more quickly toward profitability. The streaming service is rapidly gaining new subscribers, which totaled 25 million, up 48% year over year in 2018, but it's estimated that Hulu lost about $1.5 billion last year.

All will become clear

Disney was hoping to have the sale of Fox's regional sports networks (RSN) completed by late last month, a condition required to receive approval by U.S. antitrust regulators, though the company hasn't made any official announcement. With the approvals from Brazil and Mexico likely in the bag, it's only a matter of time. The process is winding down, and I wouldn't be surprised if Disney announced the completion of the Fox acquisition sometime in the coming weeks.

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Danny Vena owns shares of Walt Disney and has the following options: long January 2021 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.