Merger and Acquisition Basics

The news has recently been reporting that The Walt Disney Company (“Disney”) and 21st Century Fox (“Fox”) are currently negotiating a merger of the two companies. According to the New York Times, a deal between Disney and Fox could come as soon as next week (December 11th). In order to better understand this merger between Disney and Fox, it is important to understand the steps necessary for a merger and/or acquisition:

First, you must determine a price. The price is an essential part of knowing if you are entering into a deal you benefit from positively. After you have determined what the company’s value is, you should be better off when determining the cash amount that you would like to offer the company’s seller. What you offer the seller can be just a cash amount, as well as debt, equity, or assets, etc.Secondly, you should choose how you want to structure the deal. The three most common deal structures are:

  • Merger
  • Stock Purchase and,
  • Asset purchase

It is important to look over each of these in detail before making a decision. You might even want to consult with an attorney, accountant, or tax expert in order to be better educated.

Thirdly, it is necessary to sign a letter of intent. This document is generally a short, non-binding agreement signed by both parties which outlines important details of the transaction. This agreement should include: the purchase price, description of the deal structure, due diligence requirements, the parties’ expectations for the purchase agreement, the anticipated closing time/date, and miscellaneous documents the parties has agreed upon.

Preparing a Closing Checklist is also important. This is a list of every single document, instrument, or action that needs to be completed, signed, or delivered in connection with the closing. This list should be regularly updated and shared with the seller throughout the process to ensure transparency. This document is viewed as the most important document in the transaction.

Conducting Due Diligence is also necessary. This can be regarded as an investigation/ examination of everything and anything the company you want to acquire could create as a liability once you own said company.

For instance, it would be important to know that Disney (DIS) has $95,789,000 USD in total assets, and $53,326,000 in current liabilities, both as of September 30, 2017. Disney’s stock price is also currently valued at $105. 98 USD.

Subsequently, Fox’s total assets are approximately $16.29 billion USD, while their current liabilities total approximately $33.09 billion USD. In addition, their stock is currently valued at $32.61.

Tax, environmental, litigation, regulatory, and contractual liabilities are some areas to look at.

Negotiating the purchase agreement is another crucial step in buying a business. It is recommended that you have an attorney draft this agreement for you, and the buyer has the responsibility of drafting it.

You want to obtain all consents and approvals, which are required to close a transaction properly. Any consent that is not obtained prior to closing could result in termination of the contract, payment of a penalty, the nullification of the transaction completely, or any other consequence.

And finally, we get to the closing of the agreement. On this day, each item on the closing checklist should be completed. You should be ready, willing, and able to deliver the purchase price; concurrently, the seller should be ready to deliver any stock certificates, documents, or instruments that would effectuate the ownership transfer. Once everything necessary for a transfer has been completed, then you can celebrate the completion of your acquisition!

Now that we’ve gone over the steps necessary to buying a business, let’s look at a part of Disney and Fox’s negotiations. If they agree on a deal, it would be the “latest instance of upheaval in the media industry.” Disney would buy big parts of Fox’s “empire” in an all-stock transaction, which would include its movie and television studios, and British broadcaster, Sky, to name a few things Disney will be acquiring. This merger definitely sounds like something Disney will benefit from hugely.

By: Marissa Graniero
Paralegal Intern

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