Fox shares up 40% on Disney takeover deal

The House of Mouse has taken over the House of Fox in a $66 billion takeover deal that has electrified Wall Street and Hollywood. Walt Disney is acquiring all the film and TV assets of 21st Century Fox, the flagship of the $100 billion media empire built by Rupert Murdoch, the Citizen Kane (Hearst? Rothermere? Thompson?) of our times. KT readers of this column and my fellow investors have achieved a 40 per cent return (triple in the Chicago options market I use) as Fox surged on deal talk, as I had predicted in my original June 19, 2017 column. It is not often that I can alert my readers to a significant money making takeover deal on Wall Street five months before the deal closed but this time old Zeus on Mount Olympus wanted those who acted on my buy recommendation to share in this cash windfall! This is not speculative Bitcoin fantasy but real money earned from old fashion merger arbitrage analysis and real time tracking of the Fox options trends on the CBOE. This deal changes the competitive constellation of global media overnight. That much, at least, is certain.
Who is my next Fox or takeover bait in media? My thoughts turn to the network that gave the world Edward R Murrow reporting from London in the Blitz while the bombers of the Luftwaffe rumbled in the skies. There is no reason now for Shari Redstone not to do the right thing and merge with Viacom but that is another column, another story.
The Magic Kingdom founded by Walt Disney was the world's largest, most preeminent media company even before its Fox deal. Now it adds a 39 per cent stake in Sky, Europe's largest pay for view broadcast platform. Bob Iger transformed Disney with his Pixar, Marvel and Lukasfilms deals. Now he has hit the jackpot on a planetary scale with Fox's assets that range from India's Star TV to a stake in Hulu to the FXX/National Geographic cable channel to the mismanaged Hollywood studio that gave the world the Xmen and Avatar.
Disney brands defined my boyhood, from Mickey and Minnie Mouse to Donald Duck, from Hans Solo to Princess Leia to Luke Skywalker, from Captain America to the magical worlds of Anaheim and Orlando. Should Netflix and Apple tremble in their digital fortresses? Absolutely. Will ESPN cord cutting prevent a multiple rerating on Disney shares. No. This time the bull is real.
Bob Iger, who married my lovely Penn classmate, Lauder girl and friend Willow Bay, will continue in his role as CEO till 2021, something Rupert Murdoch demanded the Disney board accepted. Will James Murdoch be Bob Iger's crown prince. The auguries do not look good. Lachlan Murdoch will continue to run Fox News and Fox Sports. Yet Disney has just bought some of the world's most valuable media brands, streaming video technologies and distribution platform.
Has Disney overpaid for Fox assets? No if the planned $2 billion merger cost synergies do materialise as then the valuation is a reasonable 8.2 times forward EBITDA. Regulatory risk? Yes. The Sherman Act could well haunt the global media colossus from Los Angeles. While Citizen Rupert has courted Trump, as he once courted Mrs Thatcher and Ronald Reagan, the Justice Department has filed a lawsuit to derail the AT&T-Time Warner merger.
I am still struggling to get a handle of the complex math of the Disney - Fox stock swap to reevaluate my strategy stance on Disney. The Wall Street merger arbitragers (arbs) loved the deal, the reason Disney rose from 104 to 109 as I write. Assume next year EPS is $7 a share, a credible target for me.
So does it make sense that history's most fabulous media empire trades at 15.6 times forward earnings at a time when its margins, franchise value and global footprint will all expand? Not to moi. India alone is the world's top growth market for television and sports. (Cricket, our greatest legacy of the British Raj). Disney should trade at 20 times earnings - stay tuned once I have mined the intellectual grapevines of my old Street TMT gang to crystal ball the future of the Magic Kingdom. For now, Rastaman vibration, yeah! positive! Thank you Robert Nesta Marley of Trenchtown for everything.