November 6, 2020

Breakingviews: Fox-Disney deal creates a new greater fool

by Breakingviews.

Sometimes a forced seller can still be a lucky one. Take Walt Disney as an example. Just last year, it sold a cluster of sports networks to Sinclair Broadcast for some $10 billion – and on Wednesday, Sinclair wrote down their value by more than $4 billion. That takes some of the sting out of Disney’s expensive carve-up of Twenty-First Century Fox, which made it a seller of the sports networks in the first place.

Sinclair has given a few reasons why the networks are worth less than it thought. Covid-19 is one, of course, because it has messed up the scheduling of professional games. But the division is taking a hit from subscriber losses too. Streaming service Hulu and Alphabet’s YouTube dropped the channels in question, incinerating around 10% of the fees they received from broadcasters for sports in September. Sinclair’s shares have halved in a year.

Disney, on the other hand, now looks pretty smart. Regulators required the Magic Kingdom to sell the networks when it acquired them from Fox, as part of the $71 billion purchase of entertainment and other assets from Rupert Murdoch’s empire. At the time, estimates of the channels’ worth were even more than Sinclair paid. Bernstein analysts had valued them at $16 billion, for example.

Disney isn’t the first big company to benefit from good timing and unlucky buyers. Private equity group Blackstone bought Equity Office Properties in 2007 for $39 billion close to the top of the market. Thanks to a fast, aggressive selloff, it avoided heavy losses when the financial crisis hit later.

In this case, though, the cleverest of all is Murdoch, who persuaded Disney to pay an eye-watering price, and simultaneously exited the troubled business that Sinclair has now had to write down.

That leaves the hapless Sinclair holding the bag. And it isn’t the first time: Two years ago it was set to acquire rival Tribune Media but had to abandon the deal after its plans to sell off stations failed to satisfy antitrust regulators. Buying the sports channels from Disney, it seems, just provided the company with another M&A fumble.

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BREAKINGVIEWS

Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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