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Disney, Fox Huddle With Bankers as Deal Talks Progress

More signs that Disney’s acquisition talks with 21st Century Fox are picking up steam: Both companies have set teams of bankers on the case to work out the fine print.

Disney is working with a group that includes JP Morgan and Guggenheim Partners. Both entities have long relationships with Disney.

Fox has Goldman Sachs and Centerview Partners crunching its numbers. Centerview is said to be focused on financial details related to the Fox assets that would not be part of the Disney acquisition. Goldman Sachs and Centerview previously advised Fox on its unsolicited $80 billion bid in 2014 for Time Warner, among other deals.

It is possible that a  deal could be struck before Christmas, according to a source close to the matter.

Fox declined to comment. Disney reps did not return a call seeking comment.

Disney is negotiating a deal valued at $74 billion by Bernstein Research analyst Todd Juenger, which he calculated as a 30% premium on the $57.4 billion enterprise value of the assets in question. The assets on the table include the 20th Century Fox film and TV studio, the FX Networks, Nat Geo Channels group, 22 regional sports networks, Fox’s collection of international channels, including Star India, and its 39% stake in Sky. Staying behind would be Fox Broadcasting Co., the 28 Fox O&O TV stations and the national Fox Sports and Fox News operations.

Juenger predicts Disney would spend eventually another $20 billion or so to acquire the remaining stake in Sky. Fox, which owns 39%, is in the middle of trying to buyout Sky but has been held up by the U.K. regulatory review. Disney might have an easier passage through the U.K. approval process.

Like other analysts, Juenger notes that the willingness of the Murdochs to sell cornerstone chunks of the empire that Rupert Murdoch has built during the past half-century is a sobering signal about the trajectory of the traditional entertainment industry.

“Maybe the Murdochs have looked at the future and realized their business is a declining asset, worth more today than it ever will be in the future,” Juenger wrote. “So if you can sell it today, at a premium – do so.”

There’s also speculation about division in the Murdoch clan about the best course going forward. 21st Century Fox CEO James Murdoch is said to be eyeing a move to Disney if a deal transpires, possibly in the role of managing Sky, Star India and other international assets. Fox executive chairman Lachlan Murdoch is expected to stay on to run the remaining TV assets, which might be recombined under the News Corp. banner with the newspaper and publishing assets that were split off from Fox in 2013.

As for Disney, Juenger observed that the Fox deal is an enormous bet by Disney CEO Bob Iger that getting significantly bigger as a content producer will help it battle the larger issues facing traditional media.

“The businesses that Disney is buying have the same fundamental underlying challenges as all other TV-driven businesses, and the market is valuing them at similar or lower multiples than Disney’s,” Juenger wrote.

But at a time when “scale” is the buzzword for media investors, Disney could be the one old-school media behemoth with the muscle to grow in the face of heightened competition from new entrants such as Netflix, Amazon, Apple, Google and Facebook. Juenger likened the dynamic to the competition between Walmart and Amazon.

“Like all brick-and-mortars, Walmart is a victim of Amazon. But Walmart shares have performed extremely well recently, because the market has decided: Walmart is the last/biggest scale player left, Walmart now has a digital strategy, so Walmart will consolidate its power and accrue value,” the analyst wrote. “We think the potential analogy for Disney is obvious. Just insert ‘Netflix’ where we say ‘Amazon,’ and insert ‘Disney’ where we say ‘Walmart.’ “

(Pictured: Rupert Murdoch, Bob Iger)

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