Disney to sell Fox regional sports networks to Sinclair for $9.6b

Walt Disney said on Friday it would sell its interests in 21 regional sports networks and Fox College Sports to Sinclair Broadcast Group Inc for $9.6 billion, a deal that clears the way for its purchase of Twenty-First Century Fox Inc’s film and television assets.

The deal will help Sinclair, the largest US broadcast station owner, add channels such as Fox Sports Detroit and Fox Sports Florida to its existing sports business that includes Marquee Sports Network and Ring of Honor Wrestling.

Shares of Sinclair, whose bid for Tribune Media Co collapsed last year following opposition from the Federal Communications Commission, were trading up 14.6 per cent at $51.50 in after-hours trading.

Friday›s deal excludes the New York Yankees team›s regional sports network, Yes.

Sinclair plans to make the acquisition through a newly formed indirect subsidiary called Diamond Sports Group LLC.

The company said Byron Allen, CEO of Entertainment Studios, will serve as an equity and content partner in a newly formed indirect wholly-owned unit of Sinclair and an indirect parent of Diamond.

Disney, which closed the acquisition of Fox›s film and television assets in March, had agreed to sell the networks as part of an agreement with the US Department of Justice.

“The news could bring some closure to Disney›s pending obligations regarding the consent decree, while the company continues to take steps to fortify ESPN amid a paradigm shift to direct-to-consumer offerings,” CFRA analyst Tuna Amobi wrote after the Wall Street Journal.

The assets are valued at $10.6 billion, including minority equity interests.

The regional sports networks portfolio delivered a combined $3.8 billion in revenue across 74 million subscribers in 2018, the companies said.

“The transaction is expected to be highly accretive to free cash flow and brings consolidated net leverage to 4.7x and 5.1x through the preferred financing,”said Sinclair Chief Executive Officer Chris Ripley.

Diamond or Disney may end the deal if not completed by February 2020, according to a filing.

Completion of the deal is subject to customary closing conditions, including the approval of the US DoJ.

Guggenheim Securities LLC, Deutsche Bank Securities Inc, RBC Capital Markets, Pursuit Advisors and Moelis & Co are Sinclair›s financial advisers.

Last week, Walt Disney priced its highly anticipated streaming video service below Netflix in an aggressive move to challenge the dominant streaming service and entice families to buy yet another monthly subscription.

Disney said that its new family-friendly streaming service will cost $7 monthly or $70 annually with a slate of new and classic TV shows and movies from some of the world’s most popular entertainment franchises in a bid to challenge the digital dominance of Netflix.

The ad-free monthly subscription called Disney+ is set to launch on Nov. 12 and in every major global market over time, the company said. In addition to Disney films and TV shows, it will feature programming from the Marvel superhero universe, the “Star Wars“ galaxy, “Toy Story“ creator Pixar animation the National Geographic channel and the entire library of “The Simpsons.”

The company set a target of luring between 60 million to 90 million subscribers and achieving profitability in fiscal year 2024. It plans to plow a little over $1 billion in cash to finance original programming in fiscal 2020 and about $2 billion by 2024.

The cost of the service was lower than the $7.50 per month that Wall Street analysts expected on average, according to a Reuters poll, and could likely be seen as a stronger bid to appeal to more customers.

Patrice Cucinello, a director at Fitch Ratings, said Disney had priced the new service “very affordably.”

“Disney is approaching streaming offerings, particularly Disney+, with guns blazing, looking to take share and quickly ramp subscriber growth,“ Cucinello said.

To get it in front of more people, Disney said it has struck deals with Roku Inc and Sony Corp to distribute Disney+ on streaming devices and console gaming systems and expects it to be widely available on smart televisions, tablets, and other outlets by launch. It did not mention if it would be available on Apple Inc’s upcoming video service. Disney kicked off its presentation to Wall Street analysts at its Burbank, California, headquarters on Thursday with a video that demonstrated the breadth of its portfolio, showing clips from dozens of classic TV shows and movies from “ and “The Lion King“ to “Avatar“ and “The Sound of Music.“

Disney also forecast Hulu’s subscribers to reach 40 million to 60 million by fiscal 2024 and reach profitability in the United States by either 2023 or 2024. Hulu currently has 25 million subscribers and is expected to lose $1.5 billion in the current fiscal year.

The digital push is Disney’s response to cord-cutting, the dropping of cable service that has hit its ESPN sports network and other channels, and the rise of Netflix Inc. The Silicon Valley upstart has amassed 139 million customers worldwide since it began streaming 12 years ago.

Reuters