Pivotal Breaks Down The Disney-Fox Bid

Walt Disney Co DIS is reportedly close to confirming an agreement to acquire some or all of Twenty-First Century Fox Inc FOXA's media and entertainment assets.

The Analyst

Pivotal Research Group's Brian Wieser maintains a Buy rating and unchanged $35 price target on Fox's stock and a Sell rating on Disney's stock with an unchanged $83 price target.

The Thesis

The on-again-off-again talks between Disney and Fox could be confirmed as early as Thursday.

The market concentration among content packagers will increase but the market for premium video content will remain "relatively fragmented," according to Wieser. The impact to the advertising segment of the market will likely be "limited" as a combined Disney-Fox entity will still be smaller in the U.S. market than NBCU and Viacom, Inc. VIAB.

Even if Disney and Fox reach an agreement not to compete against each other in sports, they will still have to individually compete with a plethora of other players.

Disney could acquire control of Fox's international content and FX network for inclusion in its own over the top streaming platform.

Fox could benefit from a renewed focus on a smaller asset base, financial leverage and changes to U.S. media ownership rules. The combined Disney-Fox entity will still result in margin erosion for Disney, Wieser said.

Price Action

Fox's stock lost more than 4 percent Wedensday.

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