The Walt Disney Company finalized its acquisition of Twenty-First Century Fox, Inc., with financial backing co-agented by Citibank and JPMorgan Chase Bank.
Pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of June 20, 2018, Disney acquired all of the outstanding shares of 21CF and Old Disney through a transaction in which: WDC Merger Enterprises I, Inc. merged with and into Old Disney, with Old Disney surviving such merger as a wholly owned subsidiary of Disney and WDC Merger Enterprises II, Inc. merged with and into 21CF, with 21CF surviving such merger as a wholly owned subsidiary of Disney. As a result of the Mergers, among other things, Disney became the ultimate parent of Old Disney, 21CF and their respective subsidiaries. Effective as of the effective time of the Disney Merger, which occurred at 12:01 a.m. Eastern Time on the Merger Effective Date, Disney changed its name to “The Walt Disney Company” and Old Disney changed its name to “TWDC Enterprises 18 Corp.”.
“This is an extraordinary and historic moment for us—one that will create significant long-term value for our company and our shareholders,” said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. “Combining Disney’s and 21st Century Fox’s wealth of creative content and proven talent creates the preeminent global entertainment company, well positioned to lead in an incredibly dynamic and transformative era.”
To support the acquisition, on March 15, 2019, Disney entered into (a) a 364-Day Bridge Credit Agreement (the “$20,700,000,000 Credit Agreement”), among Disney, as the borrower, the lenders party thereto, Citibank, N.A., as a co-administrative agent, and JPMorgan Chase Bank, N.A., as a co-administrative agent and as the designated agent, which provides for advances to be made available to Disney in an aggregate principal amount of up to $20,700,000,000 (the “$20,700,000,000 Credit Facility”) and (b) a 364-Day Credit Agreement (the “$15,000,000,000 Credit Agreement” and, together with the $20,700,000,000 Credit Agreement, the “Credit Agreements”), among Disney, as the borrower, the lenders party thereto, Citibank, N.A., as a co-administrative agent, and JPMorgan Chase Bank, N.A., a co-administrative agent and as designated agent, which provides for advances to be made available to Disney in an aggregate principal amount of up to $15,000,000,000 (the “$15,000,000,000 Credit Facility” and, together with the $20,700,000,000 Credit Facility, the “Credit Facilities”). On the Merger Effective Date, Disney borrowed loans under the $20,700,000,000 Credit Facility in an aggregate principal amount equal to $16,100,000,000, and Disney borrowed loans under the $15,000,000,000 Credit Facility in an aggregate principal amount equal to $15,000,000,000. The proceeds of the Credit Facilities were used solely for purposes of financing the cash portion of the consideration payable in the 21CF Merger and paying fees, costs and expenses incurred in connection with the Mergers and the other transactions contemplated by the Merger Agreement. As of the Merger Effective Date, each of the Credit Facilities is guaranteed by Old Disney and each of the Credit Facilities is unsecured.
The applicable interest rate for borrowings under the Credit Agreements includes interest rate spreads based on Disney’s public debt rating that range between 0.750% and 1.125% for Eurocurrency Rate (as defined in the Credit Agreements) borrowings and 0.000% and 0.125% for Base Rate (as defined in the Credit Agreements) borrowings. Disney will also be required to pay a duration fee payable 90 days, 180 days and 270 days after the Merger Effective Date equal to 0.50%, 0.75% and 1.00%, respectively, of the aggregate principal amount of borrowings outstanding under the $20,700,000,000 Credit Facility on such date, as well as customary agency fees under each of the Credit Agreements.
The Credit Facilities will mature 364 calendar days following the Merger Effective Date. The advances may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of Eurocurrency Rate borrowings.
The Credit Agreements contain customary affirmative and negative covenants for facilities of this type, including, among others, covenants pertaining to the delivery of financial statements, notices of default and certain other information, payment of taxes, maintenance of existence, compliance with laws, and limitations on mergers. The Credit Agreement also requires Disney to maintain a minimum ratio of Consolidated EBITDA to Consolidated Interest Expense (as each such term is defined in the Credit Agreements) of 3.00 to 1.00 as of the last day of each period of four consecutive fiscal quarters.
The Credit Agreements contain default provisions customary for facilities of this type, which are subject to customary grace periods and materiality thresholds, including, among others, defaults related to payment failures, failure to comply with covenants, material misrepresentations, defaults under other material indebtedness, bankruptcy and related events, material judgments and the failure of the guaranty to be in full force and effect. If an event of default occurs under either of the Credit Agreements, then the lenders under such Credit Agreement may, among other things, declare the applicable outstanding Credit Facility and all other amounts owing under such Credit Agreement immediately due and payable.
On the Merger Effective Date, Old Disney, as issuer, Disney, as guarantor, and Wells Fargo Bank, National Association, as trustee, entered into a first supplemental indenture (the “First Supplemental Indenture to the 2001 Indenture”) to the Indenture dated as of September 24, 2001 (the “2001 Indenture”) between Old Disney and the 2001 Indenture Trustee, pursuant to which Disney fully and unconditionally guarantees, on a senior basis, the payment obligations of Old Disney with respect to all securities issued under the 2001 Indenture.
The acquisition of 21st Century Fox’s iconic collection of businesses and franchises will allow Disney to provide more appealing high-quality content and entertainment options to meet growing consumer demand; increase its international footprint; and expand its direct-to-consumer offerings, which include ESPN+ for sports fans, the highly-anticipated Disney+ streaming video-on-demand service launching in late 2019; and Disney and 21st Century Fox’s combined ownership stake in Hulu.
The acquisition includes 21st Century Fox’s renowned film production businesses, including Twentieth Century Fox, Fox Searchlight Pictures, Fox 2000 Pictures, Fox Family and Fox Animation; Fox’s television creative units, Twentieth Century Fox Television, FX Productions and Fox21; FX Networks; National Geographic Partners; Fox Networks Group International; Star India; and Fox’s interests in Hulu, Tata Sky and Endemol Shine Group. Disney and 21st Century Fox entered into a consent decree with the U.S. Department of Justice last year under which Disney will divest 21st Century Fox’s Regional Sports Networks.
Disney is also acquiring approximately $19.8 billion of cash and assuming approximately $19.2 billion of debt of 21st Century Fox in the acquisition. The acquisition price implies a total equity value of approximately $71 billion and a total transaction value of approximately $71 billion.
The acquisition is expected to be accretive to Disney earnings per share before the impact of purchase accounting for the second fiscal year after the close of the transaction, and to yield at least $2 billion in cost synergies by 2021 from operating efficiencies realized through the combination of businesses.