Walt Disney to Acquire Fox Family

Walt Disney Co. has reached an agreement with the owners of Fox Family Worldwide to buy the company for $3.3 billion, plus the assumption of $2.1 billion in debt, sources close to the negotiations said Friday.

Fox Family, which owns cable channels around the world, is the troubled joint venture of News Corp. and Haim Saban, the cartoon marketer who parlayed millions of dollars from “Mighty Morphin Power Rangers” into an ownership position and role as chief executive of the operation.

Disney, News Corp. and Fox Family Worldwide would not comment late Friday on the deal, which is expected to be announced as early as next week.

But analysts had been expecting a sale by the partners valuing the enterprise between $3 billion and $4 billion.

Saban triggered a provision in his partnership in December requiring News Corp. to buy him out. After months of internal debate, News Corp. decided to sell the operation to build a cash war chest. News Corp. Chairman Rupert Murdoch has been negotiating since September to merge his satellite assets with Hughes Electronics Corp., owner of DirecTV.

That deal, which would cost News Corp. about $6 billion in cash, is expected to be announced next month.

For Disney, the purchase would play to its strength with teen and young family audiences. The most valuable asset of the acquisition would be the Fox Family Channel, one of the most widely available cable networks in the U.S., reaching 80 million households. The Family Channel targets an older audience than either the Disney Channel or Toon Disney attracts.

Disney owns cable channels SoapNet and ESPN and stakes in E! Entertainment Television, A&E; and Lifetime Television.

After a troubled three years under News Corp. and Saban ownership, the Family Channel is starting to rebound. The channel lost most of its viewers after the partners purchased it in 1997 as part of the $1.9-billion acquisition of International Family Entertainment Inc. from TV evangelist Pat Robertson and his family.

Amid management turmoil and several shifts in strategy, the channel plunged in the ratings before reversing the trend over the last three quarters.

Disney would also get Fox Family’s channels in 50 countries in Europe and Latin America and the publicly traded Fox Kids Europe.

Sources say Disney plans to convert the international channels to Toon Disney, a cartoon channel launched in 1998 that reaches more than 15 million subscribers in the U.S. but has very little international distribution.

Not included in the sale is Fox Kids Network, which supplies News Corp.’s Fox broadcast network with programming during weekday afternoons and Saturday mornings. News Corp. will keep that unit, which is under siege by Fox stations and affiliates eager to eliminate the unprofitable weekday children’s blocks.

The Fox Family acquisition would be one of the few made by Disney during one of the most intense periods of media consolidation. Wall Street has criticized Disney Chairman Michael Eisner for standing on the sidelines since the $19-billion purchase in 1996 of Capital Cities/ABC as rivals AOL Time Warner Inc. and Viacom Inc. grew into giants. The company’s stock price has barely budged since the ABC purchase.

Disney was beaten out by News Corp. and Saban in the 1997 bidding for International Family. As a result, analysts had considered Disney the most logical buyer in this round of negotiations, although Viacom was expected to bid.

Though the price for Fox Family is in the range expected by analysts, Disney is paying a lower multiple for the asset than Viacom paid for Black Entertainment Television last summer. Cable channels generally have been escalating in value because they are the fastest-growing and most profitable of all entertainment assets.

The sale would end a tumultuous five-year partnership between News Corp. and Saban. Saban merged his children’s television library, Saban Entertainment, with News Corp.’s Fox Kids Network to take on Disney and the WB network in the children’s broadcasting arena. But that business came under profit pressure, driving the partners into cable.

Allen & Co., the Wall Street investment bank, owns 1% of Fox Family Worldwide, and Saban and News Corp. each own 49.5%.

Saban would walk away from the deal with nearly $1.6 billion. He already is exploring his next opportunity and has had exploratory discussions about buying a stake in one or more of Hollywood’s leading talent agencies, according to several sources close to the media mogul. They say he has contemplated consolidating what he sees as a fragmented and mature industry and then taking the venture public. At least one source said he had cooled to that idea in recent weeks.

Saban referred calls to a Fox Family spokeswoman, who said she had no knowledge of his plans.