Elsa, Dory, Wolverine and the Obi-wan Kenobi all in one home? Discussing M&A…

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A big movie studio and media company that you might be familiar with is called Disney. It has recently announced plans to acquire another large media company called Fox. Disney has made movies like the Marvel Avengers movies and some of your favourite animated movies like Frozen and Toy Story. Fox has made movies like the X-men and Ice Age. The price? A whopping $52.4 billion!!!! That’s a LOT of money!

Why would Disney buy Fox? Let’s talk about something that happens quite often in the  business world: you will hear people talk about something called M&A.

What’s M&A? It is the short form for a mysterious phenomenon called Mergers (M) and Acquisitions (A). This basically means the coming together of two companies.

  • An acquisition is when one company ‘acquires’ or buys another company.  In an acquisition, the buyer is normally much bigger than the company being bought.
  • A merger is a combination or squishing together of two companies of about the same size.

There are many kinds of M&A – but the most common type are:

  • Vertical: where the companies are in the same industry. This is when a company buys its supplier or its customer. An example would be a car company like Maruti buying a tyre company like MRF tyres.
  • Horizontal: where the companies are from the same industry, have similar products, and serve the same customers – think of this as Pepsi buying or merging with Coke. It is when two competitors come together to increase their presence in a market, and reduce common costs.

So Disney buying Fox – what kind of transaction is this? Well, Disney and Fox are in the same industry – movie and films, or media. In fact they each have a significant presence in this market – Disney is at number 1, and Fox at number 3! This will be a horizontal M&A transaction and the transaction will result in Disney getting a larger piece of the market.

What does Fox have that Disney wants? 

  • Some of the Marvel superheroes that they didn’t have – X-Men and the Fantastic Four, in addition to some other very successful TV shows.
  • They also get a larger share of the streaming service Hulu, which they want to make a real competitor to the streaming services we may be more familiar with, like Netflix.

Streaming services have become very popular all over the world, and most media companies want to have a presence in this area. Check this out:

It is reported that 58% of homes in America use video streaming services. 50% of those, or 50 out of a 100 of those, use Netflix. 29 out of a 100 watch Amazon Prime, and currently 14 out of 100 of those watch Hulu.

Who owns Hulu? Hulu is equally owned (30% each) by Disney, Fox and Comcast. The combined Disney-Fox will own 60% of Hulu! They might put more content on it, they may take their content (movies and such) away from Netflix so that more people subscribe to Hulu. They may try to buy out Comcast and Time Warner so that they can own the whole company. It remains to be seen. But at this point, it seems like they prefer to own more of a business in the growing area of video streaming.

The merger still has to be approved, so stay tuned to see what happens!

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