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Disney Just Lost the Battle for Sky -- and That's a Good Thing

By Steve Symington - Updated Sep 28, 2018 at 2:14PM

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The House of Mouse won't get Sky as part of its Fox acquisition. But it does get an extra $15 billion out of the deal.

Shortly after Disney (DIS -2.00%) solidified its $71.3 billion bid to acquire most of 21st Century Fox (FOX)(FOXA) last year, Disney Chairman and CEO Bob Iger called Fox's 39% stake in Sky a "crown jewel" among its assets.

After all, with nearly 23 million households across five countries, Sky is Europe's most successful pay television company. And Disney fully expected Fox to pursue the acquisition of the remaining 61% of Sky it didn't already own before its own deal closes.

Those expectations were disrupted, however, when Comcast (CMCSA 0.94%) emerged victorious by bidding 17.28 British pounds per share for that portion of Sky in a three-round auction over the weekend, representing an enterprise value of just over $40 billion. 

But if the market's reaction is any indication -- shares of Comcast plunged on the news while Disney stock gained ground -- the House of Mouse will be better off as a result.

Disney's Sleeping Beauty Castle lit up at night.

IMAGE SOURCE: WALT DISNEY CO.

A $15 billion win-win

On Wednesday, Fox revealed it will sell its 39% of Sky to Comcast at the same £17.28 per-share offer price -- or a value of more than $15 billion -- a move to which Disney promptly consented.

So why might Disney so readily let this "crown jewel" slip through its fingers? Or, more specifically, what will Disney do with its $15 billion windfall?

Keeping in mind Disney has already agreed to sell 22 of Fox's regional sports networks (RSNs) to secure Justice Department approval for the deal, Iger elaborated:

Along with the net proceeds from the divestiture of the RSNs, the sale of Fox's Sky holdings will substantially reduce the cost of our overall acquisition and allow us to aggressively invest in building and creating high-quality content for our direct-to-consumer platforms to meet the growing demands of viewers.

In particular, the move will give Disney additional flexibility to invest in the future of entertainment, namely its new ESPN+ streaming service (which recently hit 1 million subscribers after launching in April), its upcoming Disney-branded streaming service (set to launch in late 2019), and both content and international distribution initiatives for Hulu (of which Disney and Fox collectively own a 60% stake).

Disney isn't home free (yet)

This all assumes that Disney's acquisition of Fox proceeds without a hitch. We know the U.S. Justice Department has given it the go-ahead, and both companies' shareholders have formally approved the deal. But Disney cautions that it's still navigating "a number of non-U.S. merger and other regulatory reviews."

Still, it seems the most difficult pieces of this enormous acquisitive puzzle have already fallen into place, so it should likely be on track to close by the middle of next year. When that happens, and even absent Sky in its enviable portfolio of assets, Disney will be perfectly positioned to dominate the global entertainment landscape for years to come.

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Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$105.18 (-2.00%) $-2.15
Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$41.87 (0.94%) $0.39
Twenty-First Century Fox, Inc. Stock Quote
Twenty-First Century Fox, Inc.
FOXA
Twenty-First Century Fox, Inc. Stock Quote
Twenty-First Century Fox, Inc.
FOX

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