Fox Corporation’s (FOXA Quick QuoteFOXA ) founder Rupert Murdoch recently announced that the company is considering a merger with the media publishing company, News Corporation (NWSA Quick QuoteNWSA ) .
Special board committees have been established by both companies and are at an initial stage of discussion to evaluate a possible deal and potential financial terms.
A merger of the two companies would likely be structured as a stock deal. The exchange ratio reflecting the relative value of each company would be negotiated by the board committees of independent directors.
What Does This Merger Bring to Fox?
This merger of Fox Corporation and News Corporation would bring back high-profile business divisions under one roof after a split in 2013. Fox’s Fox News, Fox broadcast network, local TV stations and the Tubi streaming service would be combined with News Corp’s Dow Jones, The Wall Street Journal, as well as other assets including HarperCollins Publishers and news organizations in the United Kingdom and Australia.
This would diversify and broaden the portfolio of Fox Corporation hence gaining traction with more customers and adding new sources of revenue to its top line.
Fox Corporation Price and Consensus
Fox Corporation price-consensus-chart | Fox Corporation Quote
The publishing wing of Murdoch’s empire, News Corp has been performing better than expected. The Journal, part of its Dow Jones unit, enjoyed robust growth in its digital-subscription business over the past few years. During fourth-quarter fiscal 2022, Digital-only subscriptions to Dow Jones’ consumer products rose 9% year over year.
The digital real-estate unit and book-publishing business also have propelled growth. Revenues in the Digital Real Estate Services segment increased 7% year over year to $443 million in fourth-quarter fiscal 2022.
Fox’s driving engine has been Fox News with Fox News Channel once again closing August as the best-performing news brand for 18 consecutive months. Fox News usually attracts more prime-time audiences than its rivals and is competitive with the more widely distributed broadcast networks as well.
Murdoch sees potential moneymaking and cost-saving opportunities in joining the two companies. The new company could look for ways to integrate its media properties. It could also explore ways to use the company’s assets for emerging business lines, such as sports betting, for which Fox has already laid a foundation by launching a sports-betting platform called Fox Bet along with the Stars Group in 2019.
The merged companies could potentially save money by hiring one management team and maintaining one set of relationships with vendors, the people said.
Threats Attached to Proposed Merger
However, this merger also brings some headwinds for Fox. Readers’ preference for accessing news online, mostly free, has made News Corporation’s print-advertising model increasingly redundant.
Digital platforms, such as Meta Platform’s (META Quick QuoteMETA ) Facebook, Twitter (TWTR Quick QuoteTWTR ) , Google and Amazon, which have higher mass penetration, audience data and targeting capabilities, may impact News Corporation’s share of the digital display advertising market.
Meta benefits from increasing mobile ad revenues and growing adoption of stories by advertisers across Instagram. Twitter’s initiatives to add features and focus on effectively tackling abuse issues are helping it to expand the monetized user base, thereby driving ad revenues.
A major portion of News Corporation’s total revenues is generated outside the United States. The ongoing foreign exchange fluctuation or the U.S. dollar gaining strength may hurt both the top and bottom lines of the company.
Fox’s cable TV business also faces a serious threat from OTT platforms due to cord-cutting and changing consumer preferences. This does not bode well for Fox.
In fourth-quarter fiscal 2022, Cable Network Programming EBITDA decreased 6.8% year over year to $628 million. The EBITDA margin contracted 520 bps to 43%.
Fox, which currently has Zacks Rank #4 (Sell) declined 14.5% year to date against the Zacks Consumer Discretionary Sector, which was down 41.7%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.