Hollywood's Love Affairs With Stock Stakes.

Author:Serafini, Yuri
 
FREE EXCERPT

Of the major U.S. entertainment companies, 10 are currently traded on Wall Street's stock exchange. But that number will soon be reduced to nine and, in two years' time, might even go down to seven. This current group of 10 ranges from a market capitalization of $165 billion, as in the case of Disney, to $3.5 billion for AMC.

The above group excludes the FAANG giants (Facebook, Amazon, Apple, Netflix, and Google) because entertainment is just one aspect of their businesses. Cumulatively, the top 10 entertainment companies that trade on Wall Street have a market cap of $692 billion.

The narrative of investment in the entertainment industry this summer has been thoroughly dominated by mergers and acquisitions. AT&T was approved to purchase Time Warner, and Disney also went ahead and acquired a significant portion of 21st Century Fox's properties.

Time Warner's imminent buyout is a particularly poignant reminder of how enthusiasm around a merger can impact share price: In early October of 2016, Time Warner shares were trading at around $75. However, by the end of the month that the initial merger agreement was hammered out the formerly stable price had crept up to $82. Even as negotiations dragged on, and even earned disapproval from regulators (including the Antitrust Division of the United States Justice Department), the market remained enthusiastic, with shares hitting a high of $104 in June of 2017. The merger was completed in June of this year with Time Warner valued at a stable $103 per share. With nearly a 30 percent share price increase in two years, investors will be going home happy.

Disney and 21st Century Fox were involved in a similarly complex negotiation. In a series of unusually rapid moves, over the past year Disney took decisive steps to purchase the bulk of 21st Century Fox's assets save for broadcasting, news, and sports. Disney and Comcast had been in a bidding war for Fox's assets since November 2017.

However, in July of this year Comcast dropped its overtures to outbid Disney in order to concentrate on acquiring Sky, Fox's pan-European payTV platform. Although Disney's $71.3-billion acquisition is set to be completed sometime in 2019, 21st Century Fox's share price has been reveling in the anticipation. Trading at around $25 per share when acquisition talks began last November, shares had risen to $45 by the end of August of 2018, even though Disney's acquisition agreement values the company at $38 per share.

As is often...

To continue reading

FREE SIGN UP