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Disney-Fox Deal to Change Media Industry: ETF in Focus

The blockbuster deal between Disney and Twenty-First Century Fox could transform the entire media industry.

Rumors that The Walt Disney Company DIS will acquire most of the film and TV business of Twenty-First Century Fox FOXA, has finally turned true. The takeover has been signed at $52.4 billion in an all-stock deal.

Under the terms of the deal, Fox stockholders will receive 0.2745 Disney shares for each share held. Fox shareholders will be granted a 25% stake in Disney, and Disney CEO Bob Iger will remain in charge through at least 2021. Disney will assume roughly $13.7 billion of 21st Century Fox’s debt, bringing the total value of the planned transaction to $66.1 billion. The transaction, pending regulatory approval, is expected to complete in 12 to 18 months (read: Why Media Stocks & ETFs Are Under Pressure).

A Big Boon to Disney?

The House of Mouse, which is a home to Lucasfilm (the “Star Wars” movies), Marvel (the “Avengers”) and Pixar (“Toy Story”) as well as the Disney brands, will own Fox’s film production businesses including Twentieth Century Fox, Fox Searchlight and Fox 2000. This would bring the “X-Men”, “Fantastic Four” and “Deadpool” rights back into the Marvel fold and add “Avatar” — the highest grossing movie in history — to Disney’s family of franchises.

Additionally, Disney will acquire the Fox film studio with hit TV series including This Is Us, Modern Family, and The Simpsons, regional sports networks and entertainment cable channels like National Geographic, FX Networks, Fox Sports Regional Networks, as well as international networks like Star India, a controlling stake in Hulu, and a 39% stake of European satellite provider Sky.

Given this, the move would bolster Disney's streaming and television content and come as a perquisite to its planned launch of an ESPN streaming service in 2018 and the studio's streaming service in 2019. It would also spur the competitive positive of Disney and pose a significant threat to growing digital rivals like Netflix NFLX and AMZN (read: Netflix at Record High: ETFs to Play).

On the other hand, Fox will spin off the Fox Broadcasting network and stations into a newly listed company centered on live news and sports brands. This will include Fox News Channel, Fox Business Network, Fox Broadcast Company, Fox Sports, Fox Television Stations Group and sports cable networks FS1, FS2, Fox Deportes and Big Ten Network, as well as the company’s studio lot in Century City and equity investment in Roku.

However, the Disney and 21st Century Fox deal will attract the attention of the U.S. Department of Justice, which recently filed an antitrust lawsuit to try and stop the AT&T T and Time Warner TWX merger.

Market Impact

The blockbuster deal pushed shares of Fox and Disney up 6.5% and 2.7%, respectively, on the day. Since the deal could transform the entire media industry, PowerShares Dynamic Media Portfolio PBS now has been on investors’ radar.  

ETF in Focus

PBS is the only pure play fund providing exposure to media stocks under one roof. It seeks to offer capital appreciation by investing in companies that are selected on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value by tracking the Dynamic Media Intellidex Index. This approach results in the basket of 30 stocks with an expense ratio of 0.63%.

Twenty-First Century Fox takes the top spot with 5.60% share. While Disney does not account for any portion in the fund’s basket, it will hop in upon completion of the deal. The addition of DIS would propel PBS higher on the hype surrounding its expansion (see: all the Consumer Discretionary ETFs here).

The product has often been overlooked by investors as depicted by AUM of $47.4 million and average daily volume of 42,000 shares. It has gained 7.2% in the year-to-date time frame and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook, suggesting some upside potential in the coming months.

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Time Warner Inc. (TWX) : Free Stock Analysis Report
Walt Disney Company (The) (DIS) : Free Stock Analysis Report, Inc. (AMZN) : Free Stock Analysis Report
Netflix, Inc. (NFLX) : Free Stock Analysis Report
AT&T Inc. (T) : Free Stock Analysis Report
PWRSH-DYN MEDIA (PBS): ETF Research Reports
Twenty-First Century Fox, Inc. (FOXA) : Free Stock Analysis Report
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