Hello, and welcome to the Disney Investor Conference Call. My name is Sheryl, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference call is being recorded.
I will now turn the call over to your host, Lowell Singer, Senior Vice President of Investor Relations. Sir, you may begin.
Okay. Thanks, operator. Good morning, everyone, and thanks for joining us on such short notice to discuss The Walt Disney Company's amended agreement to acquire certain businesses of 21st Century Fox. Our press release was issued about 30 minutes ago and is available on our website atwww.disney.com/investors. This webcast is also available on our website.
After the call, we will post a replay and a transcript of today's remarks on our website. Joining me for today's call are Bob Iger, Disney's President and Chief Executive Officer and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer. Bob will lead off followed by Christine and then of course we'll be happy to take some of your questions. So with that, I'll turn the call over to Bob to get started.
Thank you, Lowell. About half an hour ago, as Lowell noted, we announced an amended acquisition agreement with 21st Century Fox valued at $38 in cash and stock. 21st Century Fox shareholders will have the option to elect cash or stock in the combined entity. The acquisition of 21st Century Fox will bring significant financial value to Disney and the shareholders of both companies. And after 6 months of integration planning, we're even more enthusiastic and confident in the strategic fit of these complementary assets and the talent at Fox.
Just to remind you of the incredibly valuable assets that we're acquiring, our deal includes such premier entertainment properties as 20th Century Fox Film and 20th Century Fox Television, FX and National Geographic, Fox's Regional Sports Networks, Fox Networks Group International and Star India, as well as Fox's interest in Hulu and Sky. Since we first announced our deal in December, the intrinsic value of these assets has increased, thanks in part to the benefits of tax reform and certain operating improvements. As we said before, the combination of Disney and 21st Century Fox is an extremely compelling proposition for consumers that will allow us to create even more appealing high quality content, expand our direct to consumer offerings and international presence and deliver more exciting and personalized entertainment experiences to meet the growing demands of consumers worldwide. We'll be able to expand iconic 21st Century Fox film and TV franchises across our businesses to entertain new generations of fans. And the acquisition will position Disney as a truly global entertainment company, significantly expanding our presence and distribution capabilities in overseas markets, especially Europe, India and Latin America.
As many of you know, we recently reorganized our company with an eye to the future, strategically positioning our businesses to capitalize on today's rapidly changing media landscape. One of the benefits of this new structure is that it will provide for a seamless and effective integration of the 21st Century Fox assets that we will be acquiring. Disney has a great track record for combining creative cultures to drive innovation and growth across our businesses from Pixar, Marvel and Lucasfilm to ESPN and ABC. And we expect the 21st Century Fox acquisition will be just as successful. We're already 6 months into the regulatory process and we are confident we have a clear and timely path to approval.
We couldn't be more enthusiastic about our acquisition of 21st Century Fox. It builds on and reinforces our strategy for creating the highest quality content and using the latest technology to deliver unparalleled entertainment and experiences to audiences around the globe. It strengthens our position in a digital future where direct relationships with consumers are more important than ever before and it promises to yield significant value for The Walt Disney Company and its shareholders. And with that, I'll turn the call over to Christine to further discuss the details of the amended agreement. Christine?
Thanks, Bob, and good morning, everyone. We have agreed to acquire 21st Century Fox for $38 per share, which equates to $71,300,000,000 in cash and stock, plus the assumption of $13,800,000,000 of net debt. Our amended agreement to acquire 21st Century Fox reflects our continued belief in the strategic rationale of this transaction and the compelling opportunity to create meaningful long term value for our shareholders. 21st Century Fox shareholders may elect to receive $38 in either cash or shares of Disney common stock for each share of 21st Century Fox common stock. As in our original agreement, these amounts are subject to adjustment for certain tax liabilities.
The overall mix of consideration paid to 21st Century Fox shareholders will be approximately 50% cash and 50% stock. Shareholder elections will be subject to pro rata adjustments to the extent cash or stock is oversubscribed. The stock consideration is subject to a symmetrical collar of plus or minus 10% and is expected to be tax free to 21st Century Fox shareholders. At the midpoint of the caller, we expect to issue about 343,000,000 shares when the transaction closes. As a result, 21st Century Fox shareholders would own about 19% of the combined company and Disney shareholders will own 81%.
As Bob mentioned, we are even more excited today about this acquisition given what we've learned over the past 6 months. The strategic rationale for this transaction is compelling and we believe the addition of the 21st Century Fox assets will result in a number of financial benefits for Disney, including an acceleration in our revenue and operating income growth trajectory, a significant opportunity for operating efficiencies, specifically we expect to realize at least $2,000,000,000 of cost synergies by 2021. We have the opportunity to use debt to fund 50% of the consideration, which allows our shareholders to retain more of the upside from the transaction. And we still expect the transaction to be accretive to earnings per share, excluding the impact of purchase accounting for the 2nd fiscal year after the transaction closes. We have a very strong balance sheet, which has provided us with great flexibility and access to attractive financing over the years.
And we've always said we would be willing to deploy our balance sheet to advance our strategic objectives. This is one of those opportunities. Given the cash component of the acquisition, we've secured financing commitments to fund 100% of the cash portion of the transaction. Assuming 21st Century Fox completes the Sky deal prior to the close of our transaction, we expect pro form a leverage to be about 4.0x total debt to EBITDA and about 3.4x if the Fox Sky deal is not completed. That said, given the strong cash flow profile of the combined company and our commitment to a strong balance sheet and commensurate credit ratings, we expect to reduce leverage by at least half a turn per year and to return to leverage levels consistent with a single A credit rating by the end of fiscal 2021, assuming 39% ownership of Sky and by the end of fiscal 2022, assuming 100% ownership.
The increase in leverage doesn't change our investment plans for other parts of our business. We'll continue to invest in areas where we feel we can drive attractive returns on invested capital. Our parks and resorts business and our direct to consumer initiatives are two examples. However, given we expect to increase our leverage to fund the $35,700,000,000 cash component, we expect to take a more conservative approach to share repurchases in the short term. And as a result, we no longer expect to complete the $20,000,000,000 share repurchase associated with the transaction we announced in December.
And with that, I'll turn the call over to Lowell, and we'd be happy to take your questions.
Okay. Thanks, Christine. Operator, we're ready to
Our first question comes from Michael Nathanson from MoffettNathanson. Michael, your line is open.
Okay, thanks. Bob Aptufia. So from the beginning, you've always made a point that you thought you had a better regulatory path because of Comcast owning distribution. But I guess following last week's Judge Leon's decision, do you think the path for both Comcast and Disney are the same? That's what we heard last week from Comcast.
So how would you defend, I guess, the argument that both regulatory paths look similar? And then secondly, any update on Sky, Christine's analysis puts Sky in terms of if or maybe or maybe not we get it, but what's the latest thinking on Sky and the following bit on Sky?
Well, I'll answer the second part first, Michael. We don't have an update on Sky. Fox is in the driver's seat regarding the 61% that they do not control. And you've read the recent news about the regulatory path that they have. And I won't say more than that.
Let me say a few things about the regulatory process. I mentioned in my remarks that we're confident and that we have a clear path. As you know, we've as you just cited, we've been working with regulatory authorities, not just in the United States, but in jurisdictions across the world now for 6 months. And we've made a lot of progress towards obtaining the regulatory approvals that are necessary and that includes supplying regulatory authorities with a tremendous amount of information, basically, heeding their requests for all sorts of documentation regarding this acquisition and the potential impact that it has on markets across the world. This itself represents in itself a meaningful head start.
I also since you mentioned AT and T and rendering his opinion in the AT and T case, Judge Richard Leon specifically found that a vertical merger, and I'm quoting, can generate competitive harm as forewarned. The temptation by some to view this decision as being something more than a resolution of this specific case should be resisted by 1 and all. One and all, as I think, as we read it, surely includes Comcast. And point of fact, the vertical integration concerns that are presented by Comcast are not the issue in the AT and T case. Comcast is the largest provider of high speed broadband in the U.
S. So you're looking at them as just a distributor as when it comes to cable, multi channel TV, but their broadband penetration is significant with a share of about 40% nationwide on top of the fact that they're a leading cable provider. And so I don't think that in the AT and T case, the broadband penetration issue was considered at all. It simply was irrelevant. So we happen to believe the dominance in broadband and cable and when you factor in their content ownership already, including a major broadcast network and multiple television stations and multiple cable channels, it's just simply an apples to oranges comparison to what the Justice Department was considering when they considered the AT and T acquisition of Time Warner.
And what is also clear to us is that in the vertical concentration issues that I've talked about, this is a great concern to the DOJ. In fact, the Department of Justice found that Comcast acquisition of NBCUniversal in 2011 was going to violate antitrust laws. And to address those, there were significant behavioral restrictions on them through a consent decree. So for all of these reasons, we believe that we have a much better opportunity both in terms of approval and the timing of that approval than Comcast does in this case. So we completely refute some of what they said earlier, I guess, it was last week when they made their bid.
Okay. Thanks,
And our next question comes from Ben Swinburne from Morgan Stanley. Ben, your line is open.
Thanks. Good morning, everybody. Two questions, Bob and Christine, what we get asked certainly by a lot of investors is sort of where does this end, how high can this go and it would make zero sense for you to answer that question. But I'm curious, you have the ability to raise the bid and use more cash and keep this nicely accretive, which brings you to the leverage question and maybe for Christine or Bob or both. How do you think about the leverage capacity of the company?
You do have some cyclical assets that at least in theory in a recession would get pressured. Can you just talk about your comfort level, whether you think about asset sales in some scenarios and anything to help us understand sort of where you would get uncomfortable or how you think about leverage? And then Christine mentioned, this probably for Bob, that this transaction would accelerate the growth of the company's revenue and operating income, which I'm sure you believed all along, but that was more of a pointed point here. Can you talk about the drivers of that? Is that a comment around your OTT initiatives, around Fox's film studio?
Anything you could add in terms of the businesses or the specifics that give you confidence that that's the case would be great.
Okay. Thanks, Ben. I'll start out with the leverage question. On previous calls, and whether we're talking to investors or in conferences, we've often been asked about our leverage. We've always indicated that our balance sheet was not only a financial asset, but we viewed it as a strategic asset.
And if there were a compelling acquisition that we determined was worthy of us taking our leverage up, we would certainly consider that. And as I mentioned in my prepared comments, this is one of those opportunities. So right now, if you look at the leverage and we're using the Moody's adjusted leverage ratios, if you just calculated it's a little bit less. But if you look at with Sky at close, it would be 4x and it would come down by 2022 to the A level. Without Sky, it would go up to 3.4 and come in a year earlier.
We would I would say we're very comfortable with this level of leverage. And because of the cash flow generating qualities of both of these companies combined, we feel very comfortable getting back to the kind of financial flexibility we have enjoyed for a long time. So I would just say we're very comfortable with where we are. And you asked about cyclicality. I think one of the beauties of the Walt Disney Company is its diversity of its businesses.
And while there are different elements that could affect cyclicality, They tend to not all move in one direction at the same time and we're managing a lot of our businesses to reduce the risk inherent in them. I would point to the studio strategy that we've had in place for the last few years, and what we would manage to adjust our business model if we needed to.
And to address the second part of your question about accelerating revenue and operating income. Look, when we made this decision to buy these assets in December, we had a vision and that was essentially to increase the company's creative output across the world and to do so in compelling ways that not only served current business models, but enabled us to grow in or to expand into new business model space at a more compelling rate. We have spent 6 months studying and engaging with the Fox Businesses and have a much greater appreciation for the potential that these assets represent to us, to our strategy today, to basically the strategy we intend to deploy long term. Just think about content creativity content creation from FX and Nat Geo and Fox Television Production or Searchlight. Think about what it gives us in terms of significant entree into India as a for instance.
We were in Delhi and Mumbai not that long ago, getting to know the Star team and getting to appreciate their businesses even more and getting a sense for the potential that those businesses represented in that market. So there are a number of different reasons why we believe this will be an accelerant for the company. And I also have to say that we've been extremely impressed with the talent that we've engaged with at Fox. And in reorganizing our company, which we did a few months back, we did it very specifically with the idea of moving many of those executives into key roles at the Walt Disney Company and using the combination of our talent to help grow the company as well.
Thank you, both.
Ben, thanks for the question. Operator, next question please.
Our next question comes from Kamen Venkates from Barclays. Your line is open.
Thank you. So Bob, in the deal, you have a number of different strategic goals that you are able to meet with distribution, international footprint, content all being parts of the Fox mix. Is there a prioritization in your mind in terms of what part of the asset base is more or less important? And how important is distribution in the way you're thinking about the strategic mix of assets in the end state? And then secondly, from the perspective of the deal itself and the agreement with Fox, is there an ability to engage with Comcast at some point and in some way try to carve up the assets in some form?
Thank you.
Well, the second part is the answer is no. We have an agreement in place with 21st Century Fox that precludes that from occurring. In terms of prioritization, as a company, our priority has always been creating great content that has an application in markets all over the world. And just specifically in India, for instance, while there's a great distribution play there, STAR produces well over 15,000 hours of original programming a year as a for instance. And so we start in terms of priority with content.
I also happen to believe that distribution is in terms of direct to consumer distribution has actually become an even more compelling proposition in the 6 months since we announced the deal. There's just been not only a tremendous amount of development in that space, but clearly the consumer is voting loudly that these new platforms are very compelling from a consumer experience and a consumer value perspective. We had, as you know, announced our intention to go into that space before we did this acquisition. And we have all the ability in the world to continue to move forward in that direction without the acquisition, but this acquisition clearly adds to our ability in a very significant way.
Thank you.
Okay. Thanks, Kannan. And thanks again to everyone for joining us today. Information in this presentation, including financial estimates and statements as to the expected timing, completion and effects of the proposed transactions constitute forward looking statements within the meaning of the Safe Harbor provisions of the Private Securities Lit implied uncertainties and actual results might differ materially from those discussed in or implied by the forward looking statements. Such forward looking statements include, but are not limited to, statements about the benefits the objectives, expectations and intentions of the combined companies and SpinCo and other statements that are not historical facts.
Such statements are based upon the current beliefs and expectations of the management and are subject to significant risks and uncertainties outside of our control. Details regarding these risks and uncertainties are and will be contained in filings with the Securities and Exchange Commission. We're not under any obligation and we expressly disclaim any obligation to update, alter or otherwise revise any forward looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date hereof. The financial information in this presentation includes financial information that is not presented in accordance with U.
S. Generally Accepted Accounting Principles. Non GAAP financial measures, including EBITDA, may be considered in addition to GAAP information but should not be used as substitutes for the corresponding GAAP measures. Non GAAP measures in this presentation may be calculated in a way that is not comparable to similarly titled measures reported by other companies. This concludes this morning's call.
We'll be available for follow ups during the day. Thanks everyone for joining us on short notice.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation. You may now disconnect.