LOS ANGELES — In a deal that will give The Walt Disney Co. valuable distribution and News Corp. cash to finance an acquisition of its own, Disney is buying Fox Family Worldwide Inc. for $3 billion in cash and assuming debt of $2.3 billion.
The deal announced Monday adds the children’s cable network to Disney’s portfolio, which already includes ESPN, the Disney Channel and stakes in A&E and Lifetime. The Fox Family Channel, which Disney plans to rename ABC Family, reaches about 81 million cable subscribers in the United States.
Disney bought Fox Family from News Corp. and Saban Entertainment Inc., which each owned 49.5 percent of the company. The sale came about after Saban, a major children’s programmer which created the “Mighty Morphin Power Rangers,” exercised its right to have News Corp. buy out its share.
Disney chief executive officer Michael Eisner said the deal was clinched last week in talks with News Corp. chairman Rupert Murdoch and Saban chief Haim Saban at a media conference in Sun Valley, Idaho, and is something “we had been fantasizing about for maybe three years.
“This is a perfect fit for our company,” Eisner said. “We paid appropriately for a great asset, which drives us to the No. 1 position in basic cable subscribers and gives us a greater presence and growth opportunity internationally.”
Disney chief financial officer Thomas Staggs said Disney was in competition with other companies for the channel. It is believed Viacom Inc. and AOL Time Warner Inc. were bidders.
“There were other folks bidding, so we sat down and said, ’What price will it take for this to be done?”’ Staggs said.
For News Corp., the deal provides a welcome dose of cash just as the company is hoping to reach an agreement with General Motors Corp. over purchase of the DirecTV satellite broadcaster, a division of GM’s Hughes Electronics unit.
The deal expands Disney’s programming reach worldwide with a 76 percent ownership in Fox Kids Europe, a children’s programming channel that reaches 24 million homes, and a 10-million subscriber channel in Latin America called Fox Kids.
Disney is also getting Saban’s programming library, which contains more than 6,500 episodes of shows.
“This really is beachfront property,” Eisner said at a news conference. “There only are about five or six strong, ubiquitous cable channels in the United States and this is one of them.”
The deal won approval from Wall Street analysts, who have been critical of Disney for not being more aggressive while other companies, such as Viacom and AOL Time Warner consolidated and tied up vital distribution outlets for Disney’s content.
“Investors have been concerned that they have not leveraged their franchises as well as they could,” said Jeffrey Logsdon, an analyst at Gerard Klauer Mattison. “This is a great cable network acquisition and fit relative to leveraging the programs they’re creating throughout the whole Disney empire.”
It is the first major acquisition by Disney since it bought Capital Cities/ABC in 1996. The company’s stock price has lagged since then.
Shares of Disney were down 12 cents to $26.88 after the close of regular trading on the New York Stock Exchange Monday.
Executives at Fox Family Worldwide also praised the deal, saying it has been difficult to operate as an independent company without the reach and support of a major corporate parent. News Corp. and Saban have been uneasy partners since they bought the operation five years ago.
“I can’t think of a better home for this channel because of the core business of Walt Disney being families and kids,” said Maureen Smith, president of the Fox Family Channel. “The support they talked about over and over will just be tenfold compared to what we’ve been able to get simply because of compatibility with the other Fox brands that really weren’t family based. The access to this kind of programming is a dream come true.”
Disney officials said the deal should increase advertising revenue for its media networks division by 50 percent within two years from the 2001 level of approximately $200 million. ABC, ESPN and other networks have suffered from an advertising slump in recent months because of the slowing economy.
The increase in revenue should come without a significant jump in programming costs, Disney said. A new lineup for the ABC Family channel will include news programs from ABC, such as “The View,” sports programming from ESPN and comedies and dramas from ABC.
The deal will also give Disney a wider platform to promote its other broadcast networks, major studio films and theme parks.
Disney expects it can cut $50 million from the operating costs of the new channel immediately by consolidating back office operations and advertising sales staffs.
The deal gives Disney the rights to air Major League Baseball games two nights a week during the regular season, plus between eight and 11 first-round playoff games.
Disney president Robert Iger said baseball came as a condition of sale from News Corp. and Saban. The games will be produced by ESPN, Iger said.
The channel will continue to show the 700 Club and other shows made by Pat Robertson’s Christian Broadcast Network, which originally started the network.
“I’ve talked to Pat Robertson and we happen to think he is an asset to the channel,” Eisner said. “He’s got a great following. He produces a quality program and we will build a schedule with a commitment to him.”