Disney to Buy Fox Family

Walt Disney Co. announced Monday that it is buying Fox Family Worldwide from News Corp. and television entrepreneur Haim Saban for $3 billion in cash, plus the assumption of $2.3 billion in debt.

Disney officials say the Fox Family channels in the U.S. and Europe will round out their family entertainment offerings.

The deal includes the Fox Family Channel, which has 81 million cable subscribers in the U.S. and would be renamed ABC Family. Disney also would pick up a majority stake in Fox Kids Europe, which reaches more than 24 million subscribers in Europe, and more than 6,500 episodes of children’s programming in the Saban Library.

Disney Chief Executive Michael Eisner called the acquisitions a “perfect fit” for ABC.

“This acquisition strengthens our company’s worldwide business of family entertainment,” Eisner said. “The Family Channel and Fox Kids are unique assets that are particularly well suited to be a part of the Walt Disney Co.”

The deal would allow Disney to broaden its target audience and expand its cable holdings, which include ESPN and SoapNet. Fox Family is aimed at an older audience than the Disney Channel or Toon Disney.

The acquisition also would help Disney competitively by giving the company a general entertainment network that it lacks. For example, Viacom Inc. has TNN, and AOL Time Warner Inc. has TBS and TNT.

Unlike those networks, Fox Family has struggled to achieve top-tier ratings. Disney hopes to change that, in part by running some shows from its ABC network simultaneously on the cable channel.

Disney expects to be able to increase Fox Family’s advertising revenue, which is about $200 million, by as much as 50% within two years, said Chief Financial Officer Tom Staggs. Disney should double Fox Family’s cash flow during the same period, Staggs said.

Fox Family would retain its current management, but the channel would be overseen by Disney ABC executives. Disney would consolidate some departments.

Company executives said it was too early to discuss programming changes but said ABC Family will be an outlet for an array of family entertainment, such as television features based on Disney-owned magazines such as Family Fun and Discover.

At least half of the programming on Disney Family would come from Disney sources during the next two years.

The transaction also would give Disney the right to broadcast some Major League Baseball games on ABC Family.

Analysts generally approved of the purchase.

“We think this deal is a positive for Disney, providing a strategic fit and improving Disney’s U.S. and international footprint,” said Salomon Smith Barney analyst Jill Krutick.

Tom Wolzien, an analyst with Sanford C. Bernstein, said the acquisition makes strategic sense because it plays to Disney’s expertise in family entertainment. However, he said, the company’s advertising projections could be unrealistic given the sour economy.

The deal could affect Disney’s credit rating. Moody’s Investors Service said Monday that it might lower its rating on Disney’s $9.5 billion in debt. Disney’s unsecured debt is rated A2.

Staggs said Moody’s response was to be expected and that the Fox acquisition will boost Disney’s bottom line.

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Sallie Hofmeister contributed to this report.