What does the fox say? I'm still not sure. But I do know what Fox sees: a lot of money hiding, to the tune of $25 billion.
Earlier this week came shocking news that the Murdoch media magnates had discussed selling a majority of 21st Century Fox Inc.'s assets to Walt Disney Co. -- yes, to the owner of ABC News and the increasingly politicized ESPN, of all places. The talks didn't include Fox News, though, and a deal is said to be off the table ... well, for now at least.
Considering just how immediately lucrative the move would be for the Murdochs and minority investors of Fox, I doubt this is the last we hear of it. An exhaustive sum-of-the-parts estimation by Wells Fargo & Co. analysts, led by Marci Ryvicker, implies that Fox may be able to unlock around $25 billion of value by breaking itself up and selling off certain pieces -- whether the company on the acquiring end is Disney or someone else.
Beyond news and sports, Fox doesn't have much scale on its own, and its other cable channels are in a ratings slump. FX's ratings are down 14 percent this year through September, while National Geographic Channel has fared worse, plunging 25 percent.
That didn't stop the company from reporting another period of solid earnings on Wednesday. Fox Executive Chairman Lachlan Murdoch also defended the company's structure without commenting on the M&A speculation.
The success of Fox News helped drive an 11 percent increase in the fees that its cable-programming division earns from pay-TV providers. But Fox News and sports programming are the core, and the other stuff may be worth more to another company.
Assuming, as Wells Fargo suggests, that Fox News and the sports programming are worth nearly $60 billion, then shareholders are currently getting the rest of Fox's assets for free or at the very least, on the cheap:
While Fox's movie studio has churned out hits such as "Deadpool," it's also had its share of box-office flops like "Fantastic Four." Overall, the film business is a lumpy one and may be dragging down the company's valuation. The division's operating income before depreciation and amortization slid 18 percent last quarter. Wells Fargo assigns the film business a multiple of 12 times Ebitda, versus 15 for Fox News. Disney CEO Bob Iger has a knack for getting the most out of movie-studio acquisitions, having revitalized the "Star Wars" franchise and built on Pixar's and Marvel's successes.
Fox needs to scale up or exploit its rivals' need to bulk up themselves. The first no longer seems an option: The company's only viable takeover candidate was Time Warner Inc., owner of HBO and Warner Bros. studios, but it rejected Fox's advances and struck a deal with AT&T Inc. instead (although that's turned into its own saga). It makes sense for Fox to focus on doing what it does best. And what precisely that is may be informed by your political viewpoints, but let's just call it making money off of news and sports content. We can all agree it certainly does that.
The Murdochs see where the future is heading and need to look to where they can prosper. Then there's of course the question, if they do sell off billions of dollars worth of assets, what would they do with the money?
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Their sum-of-the-parts analysis implies a total equity value of $89.2 billion, including unconsolidated investments. But the analysts applied a 15 percent discount for "control and conglomerate adjustments" that brings it to $75.8 billion instead, versus a market capitalization of $51 billion as of Wednesday.
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