Disney-Fox deal : valuation of an acquisition

Master of Science in Management (specialization in Business Analytics) UPF Barcelona School of Management. Curs 2018-2019Mentora: Luz ParrondoThe entertainment and media industry is a constantly changing and fast-growing industry. Thanks to the increasing number of M&A transactions and shifting consumer demand for high-quality content on Internet, media market has to reshape and companies are encouraged to transform their products by focusing on digitalization. This master thesis evaluates an acquisition of 21st Century Fox by the Walt Disney Company, the two media giants inside the US market and beyond. First of all, the paper examines what an M&A deal is and what drives some companies to proceed these transactions. Also, the valuation methods for M&A are studied and applied in the research. In addition, the media industry and the companies are analyzed by focusing on trends, competition, and historical financial performance. After this, the fundamental analysis of both companies is provided and the economic reasoning of the acquisition of Fox by the Disney Company is determined by using Discounted Cash Flow method and the Data Envelopment Analysis. Both companies are valued independently and as a combined firm. As a consequence, the acquisition deal seems to be the perfect strategic and economic fit. The transaction will increase a leading position of Disney in the movie and TV production and will decrease the approaching competition from streaming and online companies. Besides, the purchasing price of $71,3 billion is going to be beneficial for Disney. Also, the deal will cause the efficiency score of Disney to grow from 41,6% to 47%. And, therefore, the estimated value of a synergy is going to be twice as high as the current Disney’s EV ($1 281,568 billion as the best estimate), which promises the high potential for this media corporation. Moreover, the transaction will encourage Disney’s Revenues and Income to grow by 35% and by 48% in 6 years, respectively, and will force its market share to increase from 15,6% in 2018 to 31,9% by 2024, which also will strengthen the company’s position in the market