Disney and 21st Century Fox Companies Analysis Paper Example

The Background of The Companies

Disney Company which was initially known as the Disney brothers cartoon studio was named after the two brothers Walt Disney and Roy O. Disney (Latif et al., 2014). Walt Disney moved to California in the year 1923 where he comes to try out his luck since he had previously produced a cartoon called allice's wonderland which formed a series of Alice Comedies. It was used as the pilot project which later became a massive success for Walt and led to the company name change to Walt Disney studio which would later the start of many more cartoon series (Latif et al., 2014). The company has since then been running for nine decades and moved from a studio to one of the biggest corporations of our day. Walt Disney has grown to become a multinational mass media and entertainment giant producing a total revenue of $55.14 billion in 2017 (Latif et al., 2014).

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21st-century fox came by after the splitting of the properties from News Corporation on May 24, 2013, was agreed on by the shareholders a move which was geared to unlocking the capabilities of the two companies after the original company suffered significant scandals which nearly pulled down the company. The company was later in the year 2017 bought by Walt Disney company for a whopping $5.24 billion amidst a spin-off of some of the business owned by the company was awaiting regulatory approvals (Evens & Donders, 2016). Walt Disney Company acquired 21st-century fox assets and thus dealing with the issue of competition from the company.

Strategic Advantages and Disadvantages for the Companies

Walt Disney has positioned itself as one of the most popular and most influential brands which have an ever growing list of business portfolios and products which are tailored to meet the customer expectations a factor which has allowed the company to attain vibrant cooperative growth. However, the company has faces shortcomings in the area of innovation with a limitation on the different use of technologies that improve the company's operations thus missing out on the competitive advantage associated with these technologies (Latif et al., 2014). Another disadvantage is their limitation to expand their amusement parks which are generally associated with the expansive requirement which include and not limited to the capital, redesigning and strategic location for these parks.

21st century Fox Company has new and original content being developed every day to cover the diverse requirements of their consumers which grows to the rights it owns for films like Avatar, x-men, and cable television series American Idol Company (Singh, 2018). The company however heavily relies on advertising and subscription fees a factor that has lowered its expansion capabilities.

The impact the merger or acquisition will have on the companies' stakeholders

Customers

The merger will see the various products offered by both companies being broadcasted in one platform which will see consumers enjoy films like x-men and Avengers and not necessarily depending on Netflix and other cable TV providers. The merger will also boost the streaming capabilities to the consumer

Employees

The alliance is a significant blow to the filmmaking employees since some of the redundant jobs will have to be scraped and significant layoff conducted to save the cost of employment for the new company (Singh, 2018).

Shareholders

A merger has to be agreed upon by the stakeholders who have to consider the benefits that accrue from the incorporation. Having the stakeholders on board will see the new company share out its profits to the subsequent stakeholders (Latif et al., 2014)

Government

The merger brings along new taxes that should be paid to the government through licenses for airing content which means more revenue.

Debt holders

Debt holders will benefit from the merger since they have to be paid their returns on principal which has to be carried forth; this is, however, a decision by the management

Management

The management of both the companies on board will have to reconvene for a sit down to decide on the sharing of power and allocation of roles to guarantee the success of both companies.

Legal Issues and Concerns

Large sums of money are often employed in mergers and acquisition as is the case with Disney. The deals create a lot of attention from the public and have a high likelihood of creating disputes. Therefore, the companies involved in a merger and acquisition transaction needs to ensure they create value through a potentially synergetic activity and thus the need for a clear strategy for implementation. Federal Communications Commission regulations are a significant concern that affected the merger (Evens & Donders, 2016). The commission requires that companies to own only one broadcast network and Disney already owns ABC which means it the company could not acquire Fox's broadcasting network. Broadcasting networks are faced with a challenge where they can only earn money by making it a home programming network which is a function that is already owned by ABC or making it a source of cheap programming. Therefore, Fox TV is likely to collapse shortly (Evens & Donders, 2016). The company will not need to air most of its programs if they cannot receive any revenue from it. Customers will need to shift to ABC to have access to some of their favorite shows.

The merger works to show the likelihood of a crisis in the Hollywood entertainment industry. Fox seemed to be in perfect health but has been consumed by Disney which may be the onset of a trend that would only lead to one company being left in the industry (Sudarsanam, 2003). The customers are concerned with the shift since it implies that three or four companies own the major media providers in the world. The implication is that it will affect how media consumers can access content (Evens & Donders, 2016). Therefore, the merger indicates that the American entertainment industry is not healthy. Content consumers are consequently adversely affected by the merger.

Accounting Issues

The alliances were strategized to assist Disney in making itself a technology giant that can challenge Netflix which is a primary competitor of the companies. However, the merger was not without challenges for both Disney and Fox. The risk that the companies may experience include the management of synergies that are expected in the due diligence phase (Sudarsanam, 2003). Despite both companies being in the same industry, there are potential risks of mismatches in operations which will prevent them from completing the merger. Disney will acquire different business functions that are held by Fox Century which will then present significant integration risks. Therefore, integration steps and cultural changes must be addressed before the completion of the merger. Accounting related challenges need to be addressed adequately for the merger to be successful.

After the completion of the merger, the companies will be required by the FASB to prepare combined financial statement including tax returns. Therefore the companies have to choose between various accounting systems, methods, policies and personnel before the completion of the merger. Disney and fox apply different tax and book accounting techniques. Therefore, the companies will need to amend tax fillings that have been done in the past to allow comparative financial statements. The companies need to synchronize their accounting systems to avoid slow collection of data or the collection of inaccurate data. During the negotiations for the deal, a competing bid was placed by Comcast which presented a challenge for Disney. Disney was required to allocate a purchase price for Fox's assets and liabilities (Sudarsanam, 2003). Disney was at risk of offering an inaccurate valuation of intangible assets and hasty price allocation to close the deal before Comcast provides Fox a better deal. The action could lead to unnecessary write-offs for the entity in the future. Disney had to increase the biding amount to $71.3 billion in response to the offer made by Comcast. Comcast had offered $65 billion in cash which was higher than Disney's initial offer of $52.4 billion which valued the shares of Fox at $28 (Latif et al., 2014). The counteroffer places Disney at risk of asset layoffs soon since it was a hasty decision.

References

Evens, T., & Donders, K. (2016). Mergers and acquisitions in TV broadcasting and distribution: Challenges for competition, industrial and media policy. Telematics and Informatics, 33(2), 674-682.

Latif, M., Jaskani, J. H., Ilyas, T., Saeed, I., Shah, K., & Azhar, N. (2014). Tactful Acquisitions & merger of The Walt Disney Company improved its performance, showed by financial & industry analysis. International Journal of Accounting and Financial Reporting, 4(1), 274-295.

Singh, P. N. (2018). Impact of Mergers and acquisition on Management and Employees. Journal of Management Science, Operations & Strategies (e ISSN 2456-9305), 2(1), 32-37.

Sudarsanam, S. (2003). Creating value from mergers and acquisitions: The challenges: An integrated and international perspective. Pearson Education.

21st-century fox (2018). United State Securities and Exchange Commission Washington, Dc 20549 Form 10-Q Retrieved from nvestor.21cf.com/node/19231/html#NOTES_TO_UNAUDITED_CONSOLIDATED_FINANCIA