Fox Closes Roku Deal, Targets $400 Million in Annual Cost Savings

By Amara Osei

$95.30 in cash plus 0.9799 Fox Class A common shares is what Roku shareholders receive in Fox Corporation’s completed acquisition. The merger agreement applies that consideration to each Roku Class A or Class B share held immediately before closing. Fox targets approximately $400 million in annualized cost synergies within two years.

What changes for shareholders?

Existing Fox shareholders own approximately 74% of the combined company’s outstanding common shares. Former Roku shareholders own approximately 26%.

Roku shares will cease trading on Nasdaq following the transaction. Fox said the acquisition expands its direct exposure to streaming distribution, connected television advertising and consumer viewing technology.

Fox Executive Chair and Chief Executive Officer Lachlan K. Murdoch said:

“The closing of this acquisition advances the long-term strategy of FOX. Beginning today, our top priority for the combined company is to continue to relentlessly serve audiences and partners, while reinforcing the openness and choice that is the essence of the Roku platform.

Our shared entrepreneurial passion and clear conviction toward building the future together with our new Roku colleagues gives us great confidence in the opportunities ahead of us.”

Fox said the transaction creates a larger media and technology organization spanning Roku, Tubi, FOX One and other streaming businesses. The deal expands Fox’s streaming and connected television business by combining Roku’s distribution platform with Fox’s existing media and digital properties.

How much can the combination save?

Fox anticipates potential revenue benefits from combining the businesses, beyond the approximately $400 million in annualized cost synergy target. Fox management expects the transaction to accelerate Fox’s digital expansion and increase the company’s exposure to streaming-related revenue opportunities.

Fox also expects the acquisition to become accretive to free cash flow per share by the second full year following closing.

What does Roku add to Fox’s reach?

Fox said Roku’s platform reaches more than 100 million households worldwide and provides access to thousands of streaming applications and channels. Fox will continue operating the business as an open distribution platform, maintaining access for third-party content providers.

Fox intends to preserve that approach while combining its programming, advertising relationships and streaming businesses with Roku’s technology and distribution capabilities. Fox believes preserving relationships with third-party streaming providers and advertisers will be important to the platform’s continued growth.

Fox’s portfolio includes:

• Media operations: Fox News Media, Fox Sports, Fox Entertainment and Fox Television Stations.
• Digital businesses: Tubi, FOX One and Red Seat Ventures.

Fox said the integration creates opportunities to connect Fox’s live sports, news and entertainment programming with Roku’s connected television ecosystem. The broader platform combines content, distribution technology, advertising capabilities and connected television services.

Who leads the expanded digital business?

Roku founder Anthony Wood will join Fox’s board of directors. He will also serve as Co-Chair of FOX Digital Platforms, a newly created division encompassing Roku, Tubi, FOX One, Red Seat Ventures and other digital businesses.

Paul Cheesbrough will serve as the division’s Co-Chair and CEO. Wood retains a continuing leadership role as Fox brings the acquired business into its broader operating structure.

Roku founder Anthony Wood said:

“We started Roku more than two decades ago to give people a better way to watch TV, and that mission doesn’t change today. What does change is our reach and resources. FOX has a deep respect for Roku’s culture and wholly shares our commitment to staying open to every content partner.

Our teams will keep building and innovating as they always have, now with the support and capabilities of FOX behind us. I’m proud of what Roku’s employees have built, and I’m excited about what comes next.”

How was the transaction advised?

• Fox financial advisers: Allen & Company served as lead financial adviser; Morgan Stanley and Goldman Sachs also provided financial advice.
• Debt financing: Morgan Stanley Senior Funding led the transaction’s debt financing.
• Fox legal counsel: Weil, Gotshal & Manges served as Fox’s legal counsel.
• Roku advisers: Qatalyst Partners acted as exclusive financial adviser; Goodwin Procter and Axinn provided legal advice.

Fox’s stated priority is to reinforce Roku’s open distribution model and serve audiences and partners. The next test is whether Fox can retain third-party providers and advertisers while delivering approximately $400 million in annualized cost synergies within two years.