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Business Acquisition Analysis:: A Case Study of Disney-Fox Deal
Business Acquisition Analysis:: A Case Study of Disney-Fox Deal
ABSTRACT
The media and film industry has been experiencing constant development in the past decades. In this context, an
increasing quantity of mergers and acquisitions have been witnessed, essentially changing the layout of power
distribution of the film industry. This study reviews one of the most renowned acquisition cases between 21st Century
Fox and Walt Disney. More specifically, this article introduces what factors lead to this acquisition and how is
negotiated between these two industrial giants. Ultimately, an aftermath analysis is employed to appraise the results of
this acquisition. It is found that this acquisition generally reaches a win-win consequence, especially concerning the
economic benefits and the enhanced competitiveness of Walt Disney. In line with strategic business negotiation
tactics, this case study respectively discusses the implications for strategic negotiation theories and puts forward an
array of suggestions for the ensuing business acquisition practices in the film industry.
On the other side, 21st Century Fox Inc. is a famous demand inside the industry was shifting significantly to
media giant founded by Rupert Murdoch in New York, digitalization, forcing the entertainment industry to
USA, in 1980. By the time being acquired, this company innovate its services and adjust to the fast-changing
has 29 broadcast television stations in the US, conditions [5].
demonstrating the contents including news, sports,
Nevertheless, on June 13, 2018, another media giant
technology, and entertainment. For now, it is still one of
“Comcast” announced that it would use all cash to bid
the largest television stations in the US. Aside from the
for the assets of 21st century fox with $65 billion USD to
television channels, the other assets of Fox are comprised
compete with Disney. Comcast, headquartered in
of Fox Entertainment and National Geographic
Philadelphia, Pennsylvania, is the largest cable television
Magazine, etc.
company in the United States and the parent company of
Universal Pictures, another large Hollywood studio.
2. DRIVING FORCES OF THE ACQUISITION Universal Pictures has developed a series of well-known
series films as Jurassic Park, The Fast and the Furious,
With the dramatic rise of online streaming platforms etc.
such as Netflix, Amazon, and YouTube, the Hollywood
entertainment tycoons, Walt Disney Company, is under In the end, Comcast's participation forced Disney to
considerable threats from other newcomers. In order to raise its purchase price. On June 20, 2018, Disney raised
regain its competitive advantages, Disney decided to its offer to $71.3 billion USD in the form of cash plus
compete with them by launching an acquisition project. stock. Subsequently, Disney and Fox shareholders
When it came to December 14, 2017, Walt Disney approved the merger of the two companies, and the full
surprisingly announced its acquisition plan of Rupert deal was completed on March 20, 2019, with the
Murdoch’s 21st Century Fox Film with a total price of permission of the major international market regulators
52.4 billion US dollars. This acquisition includes 20th [5].
Century Fox Film, television department, cable Disney remained absolutely competitive in the
entertainment networks, international television business, animation market in 2006 with a $7.4 billion acquisition
Fox TV, and National Geographic and 30 percent of the of Pixar. In 2009, Disney bought Marvel Entertainment
stock of Hulu. for $4.24 billion. In 2012, Disney announced an
The reasons for Fox to decide to sell its businesses acquisition of Lucasfilm for $4.06 billion, allowing
can be traced back to 2014, when Fox posed a plan to Disney to grab one of the world's most mature and
carry out a more than 80 billion US dollars acquisition of largest IP "Star Wars" series in the sci-fi space. By
Warner Film. However, after the announcement of the acquiring Fox's film and television business and
acquisition plan, the stock price of Fox commenced acquiring a stake in its streaming company, Disney is
falling, ultimately making Fox become extremely well-versed in the path of acquisition. But whether it can
underfunded. In consequence, Fox had to finally cancel use the acquisition to gain a foothold in the streaming
the plan, causing a massive waste of its resources. After war remains to be seen.
this tricky issue, Fox cannot maintain its market position,
especially amidst the increasingly fierce competition 3. ANALYSIS OF THE NEGOTIATION PROCESS
from other technological giants that have already gained
a dominant position in the digital online distribution of In the negotiation process between Disney and Fox,
film and television video content [5]. Disney applied multiple tactics that lead to the success of
the acquisition [6]. According to previous studies, the
At that time, those emerging technology companies
most important strategies involved in the negotiation
like Apple and YouTube have already obtained 3 trillion
include comprehensive preparation, flexibility of the
dollars market value. In comparison, Fox had only
decision-making process, delicate design of payment
valued $37.4 billion in the stock market. In that scenario,
methods, and trust construction, all of which are
Fox's management executives believed that to survive
discussed as follows.
amid the substantial market competition, they must seek
additional funding, and failing to do so means they will As mentioned in the last section, Disney’s proposal
go bankrupt sooner or later. In that case, the Murdoch was $52.4 billion US dollars in the beginning. However,
family ultimately determined to instantly sell the Comcast’s bid was $65 billion and all of them were in
company for a good price when Fox still had some cash. In fact, as early as December 2017, Fox had
remained values [1]. This was when Disney came in to rejected Comcast's offer of $60 billion of shares. But for
propose an acquisition plan to Fox in 2017. On the other this time, the new proposal seemed to be very attractive
hand, Disney also desired a transformation of their to Fox. To show the determination of the acquisition,
business model when encountering high competition of Disney made a very quick follow-up proposal to raise the
those streaming and online services like Netflix or price to $71.3 billion, with a payment method by
Amazon Prime. As perceived by Disney, the customer combining cash plus stock. This decision can be deemed
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as the key reason ascribing to the final agreement. 4. AFTERMATH ANALYSIS OF THE ACQUISITION
Superficially, this action may seem like a very normal
and common bidding decision. However, as shown in After the acquisition of Fox, Disney has become one
previous literature, there are massive works behind the of the largest online streaming service providers,
scene to achieve such an efficient and effective reflection followed by Netflix and YouTube. A new streaming
and adjustment. service Disney+ has also been put forward recently. For
now, it can be said that the combination of Disney and
First, before the bidding, Disney has already made a Fox has successfully formed one of the largest films and
comprehensive preparation by understanding its media players in the world, and this will continue to
competitor’s capabilities and the needs of Fox [6]. They reshape the layout of the worlds’ film and media
prepared ample financial recourses including the budget industry.
of cash and stocks to ensure that they were equipped with
ample capacity to conduct the negotiation. In other When looking at the financial performance of this
words, their comprehensive feasibility analysis ensures acquisition, the price (cost) of the acquisition was 71,3
that they can act easily in the following negotiation billion US dollars. In contrast, the market value of Walt
process. Disney has been increased by more than 40 percent, with
an average annual increase rate of more than 18 percent
Also, they did try to learn about how much money [9]. Even though the growth of market value can be
Comcast can offer to FOX and the actual valuation of attributed to various reasons, it can be always adopted as
FOX. As been acknowledged by previous strategic an initial indicator to evaluate a company’s performance
acquisition theories, in the preparation stage, it is very in a given time period.
important to thoroughly consider the income of both
sides, the capability of other competitors, the change of Then, from the perspective of the revenue of Walt
enterprise's equity structure and financial arrangement Disney, it has witnessed a similar growth pattern, with an
[6]. Disney, in this case, did a pretty good job in the annual increase rate of more than 6 percent (from 90000
preparation stage. million USD in 2018 to 100000 million USD in 2021)
[9]. With respect to the market share percentage, before
Then, the comprehensive preparation, in the later the acquisition, Disney had a market share of around 16
stage, directly led to an enhanced decision-making percent and Fox of less than 8 percent. By the end of the
process. As mentioned by extant studies, this decision to year 2020, their market share had grown to 26 percent
raise the price was incredibly fast. To avoid the and is expected to continue this trend of an annual
possibility that Fox may agree with Comcast’s proposal, increase rate of more than 6 percent [9].
Disney in fact, speeded up its response rate and internal
management process. The acceleration of the negotiation Other than the indicators of stock value, revenue and
speed ends up defeating the counterpart’s confidence to market share, other financial indicators such as costs,
keep proposing new biddings [6]. cash flow, return on investment and so forth, all of which
have experienced dramatic growth after the acquisition.
In addition, to obtain the best benefits for Disney, the Thus, it can be said, in the dimension of the financial
payment methods were also reasonably selected by performance after the acquisition, it is definitely a win-
comprehensively considering its own economic strength, win situation for both sides.
financing channels, financing costs, and the merged
enterprise's actual situation [7]. Mixed payment in an Beyond the financial performance, it is considered
acquisition refers to purchase something through cash, that Disney has gained even more advantages in strategic
stock and corporate bond warrants, asset-backed income positions. After the expansion of Disney, it gradually
certificates, etc. Disney adopted the method combining becomes to enter into the dominant position in the US
cash and stock, which can avoid paying excessive cash, film making supply and distribution chain [10]. It can be
causing the tension of the capital chain, and prevent the further expected that, in the foreseeable future, Disney
dilution of the original shareholders' equity or the would obtain substantial market power in all its business
transfer of control. Eventually, as the Disney stock value areas.
continues to grow, this payment method leads to a win- After acquisition, Disney compare with old rival
win situation for both Fox and Disney [8]. Netflix:
In sum, all the facts revealed above show that the First, in content resources, Disney's acquisition of
choice of acquisition model plays a crucial role in the Fox, the total size of the film and television content
success of acquisition negotiation. The smooth library is still not comparable to Netflix. Disney's system
negotiation should thereby be ascribed to the will have an impact on Netflix's content supply, but in
indispensable component of the acquisition, and facilitate the short-term Disney's content library will be hard to
the following success of the operation, which would be beat Netflix. Second, in terms of content creation, Netflix,
reviewed next section. while creating new IPs such as House of Cards, is far
worse than the Disney-Fox combination.
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Third, Disney's volume and capital are on Netflix, negotiation are not vague factors such as psychological
and the overall content investment will exceed Netflix's. expectation, but must be based on a certain reality. The
But Netflix isn't weak either, spending more than $6 acquisition of relevant information has a direct impact on
billion a year on content and $8 billion in 2018. the behavior choice of both parties in the negotiation.
The acquirer can continuously adjust the M & A pricing
Fourth, in terms of user development, Netflix users
in the negotiation to optimize its own strategy by
have already passed 100 million, of which the United
obtaining more information, and finally reach an
States domestic users, international users basically
agreement with the other party in the negotiation to
accounted for half, international business has made great
complete the acquisition. As in this case, Disney
progress, and is in a state of rapid development. Disney
investigated a lot of information about competitors and
2019 full launch of OTT, there is a domestic and
fox, and made a series of plans based on this.
international OTT user training period, in the short term
it is difficult to completely shake The status of Netflix. The negotiation plan is the programmatic document
of the negotiation and the action guideline and plan of
Fifth, in the way of thinking, Disney's media, creative
the negotiation. With a negotiation plan, those who
thinking and Netflix’s Internet thinking are two
participate in the negotiation will have a clear idea of it
completely different ways of thinking. If Disney can't
and be able to compare it with the plan at any time
change its mindset, or run OTT in the media way, there's
during the negotiation so as not to make mistakes.
little chance of success, which is an insurmountable
Therefore, it is important to formulate a concise, concrete
obstacle to many traditional business transformations.
and flexible negotiation plan. To make a negotiation
Sixth, for Disney, it is necessary to take into account plan, the company should have a broad mind, especially
the traditional film and television channels, which is a a repeated comparative study of the intentions of both
cash cow that cannot be abandoned. Content operations sides. A variety of options should also be sought.
strategy certainly cannot be fully committed to OTT
After that, based on the negotiation plan, it is
regardless of traditional channels.
extremely important to construct specific strategies on
Seventh, the logic of OTT market is not that if there the negotiation table, such as to make corresponding
is content, there will be users. HBO has traditional users, countermeasures, and choose the payment method that is
but its OTT business HBO now business has always been in line with the interests of both parties. Through the
weak. China Mobile has users, and it can't do video analysis of Disney Company's case, we can see that
business after pouring in content. Migu is a failure. Disney has a clear goal for this acquisition, to accurately
Disney's OTT strategic transformation has this kind of grasp the position of the target company in the group and
risk. As long as the content of Netflix is improved, there enhance its competitiveness from various aspects such as
will certainly be user improvement, but Disney is not content and technology channels.
necessarily.
At the same time, we should adjust the negotiation
On the whole, if the strategic transformation of strategy in time according to the specific situation, and
traditional media can rival the media business of the four consider the impact of many other bidders' behavior on
Internet giants FANG is to be seen. At present, the negotiation between the two parties (that is, the
traditional media has the advantage of content, but the possibility of negotiation breakdown). In special cases,
result is hard to say. we can speed up the decision-making process and speed
of the negotiation, and adopt the "push" strategy to
achieve our own negotiation purpose. Disney adjusted
5. REFLECTION AND CONCLUSION the purchase price in a short time, accelerated the
In the sum of the above analysis and review, it can be response speed and internal management process. It not
concluded that through the acquisition of Fox, Disney only hit the confidence of competitors, but also prompted
has achieved multiple benefits, including but not limited fox to speed up the negotiation agreement with Disney.
to the enhanced market competitiveness, bargaining Finally, for media giants, there are many ways to
power and influences in the online media streaming field. achieve their own development, but M & A is
From the perspective of financial performance, it is also undoubtedly their favorite way of expansion. The reason
an undoubtedly successful acquisition case in history. In is that M & A can achieve rapid development and
light of the analysis conducted in this study, it can be quickly occupy new markets. However, since film and
inferred that strategic negotiation plays an essential role media enterprises generally have distinct corporate
in success. Some implications can be thereby reflected as cultures, it is an extremely complicated task for mergers
below. and acquisitions to be made. Therefore, it becomes
First of all, it is important to be fully prepared for the increasingly essential for both sides to create the synergy
negotiation: to obtain comprehensive information and effect, which may greatly affect the success in the long
complete plans. The factors that influence the choice of term. Moreover, it should be noted that through mergers
and acquisitions, the market pattern can only be
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new media and new markets; Secondly, strengthen the Cinemas: Journal of Contemporary Film, 8(2),
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M & A is an important means for media groups to the Changing Media Environment in the
achieve rapid development, they still need to pay US. Journal of Convergence for Information
attention to brand building, content marketing and new Technology, 10(1), 28-34.
media development to enhance their core
competitiveness. [8] Pinheiro, V. C. B. D. (2020). 21 century fox
acquisition impacting Disney’s studios (Doctoral
dissertation).
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