By Senad Karaahmetovic
On Friday, Fox Corporation (NASDAQ:FOXA) announced on Friday it has formed a Special Committee that will explore the potential combination with News Corporation (NASDAQ:NWSA) (NASDAQ:NWS).
"The Special Committee, consistent with its fiduciary duties and in consultation with its independent financial and legal advisors, will thoroughly evaluate a potential combination with News Corp. The Special Committee has not made any determination at this time, and there can be no certainty that the Company will engage in such a transaction," it was said in the press release.
The WSJ later reported that a deal, if implemented, would be structured as all-stock. Here's what Street analysts have to say about the potential merger that would put Fox News and Fox Sports under the same roof as Wall Street Journal.
Goldman Sachs analysts: "While not taking a view on potential outcomes, we make the following observations: (1) Previous management commentary has not been in favour of a combination; (2) Scale remains critical, with the two businesses having diverse geographic and segment exposures; (3) Valuation for NWS continues to be at a discount to peer assets; (4) NWS' Digital real estate will likely be a focus from investors."
Morgan Stanley analysts (covering NWS): "The main opportunity we see for NWSA shareholder value un-lock (i.e.a reduction in SoTP discount) would come as a result of further simplification of NWSA's asset portfolio (e.g. REA and FOXTEL investments)...and we think the most upside for existing NWSA shareholders likely comes if such asset sales/spins are executed by NWSA itself, before any potential merger with FOXA is undertaken."
Morgan Stanley analysts (covering FOX): "The benefits of greater scale and modest cost synergies is in our view largely offset by increased complexity. For FOX, shares suffer from a low multiple given exposure to the US pay-tv market where secular headwinds are building. Considering bulking up with News Corp may be a reaction to this."
Wells Fargo analysts: "The Friday announcement does not indicate a splitting of FOXA's sports vs news assets as far as we can tell, but we'll see if the special committee comes to similar conclusions as we have. We think news is a high margin business, and as such a Fox News +News Corp entity could handle most of the combined debt load."
Credit Suisse analysts (cuts FOXA to Neutral from Outperform): "The merger would not resolve Fox’s need for greater video/streaming scale, and the pivot seems a tacit admission of challenges for Fox (be it a lack of stand-alone value creation opportunities or increased secular concerns). Even if this merger does not ultimately come to fruition, the investment backdrop for Fox has been altered."