Fox In Stocks- Twenty First Century Fox In The Mouse House

As we discussed last week, the big Disney (DIS) / Twenty First Century Fox deal is set to close this Thursday. In the meantime, 21st Century Fox shareholders have made their choices about how they want to receive their ‘consideration’ from Disney and apparently too many wanted the cold, hard cash:

• Holders of 959,919,192 shares of 21CF common stock, or approximately 51.57% of outstanding shares, elected to receive cash;
• Holders of 682,198,198 shares of 21CF common stock, or approximately 36.65% of outstanding shares, elected to receive shares of common stock of New Disney; and
• Holders of 219,388,371 shares of 21CF common stock, or approximately 11.79% of outstanding shares, did not make an election.

Based on those results, shareholders who elected cash will unfortunately receive some portion of their consideration in shares. Before that happens though, shareholders will receive something else as part of the transaction – shares in the spinoff of the new Fox Corporation! Early too, with the distribution happening today at 8am. Shareholders will receive 1 share of new Fox stock for every 3 shares of 21st Century Fox stock owned. The transaction is quite complicated though, particularly when it comes to the tax side:

Pursuant to the Amended and Restated Distribution Agreement and Plan of Merger, dated as of June 20, 2018, by and between 21CF and 21CF Distribution Merger Sub, Inc., and because the Distribution Adjustment Multiple is approximately 1.357190, 0.263183 of each share of 21CF common stock held at the time of the Distribution will be exchanged for 1/3 of one share of FOX common stock of the same class, and holders will receive cash in lieu of any fractional share of FOX common stock they otherwise would have been entitled to receive in connection with the Distribution. Following the completion of the Distribution, holders will continue to own 0.736817 of each such share of 21CF common stock, which will remain issued and outstanding until 21CF merges with a subsidiary of Disney (the “Acquisition”). The 0.736817 of each share of 21CF common stock remaining outstanding following the Distribution will be exchanged for the amount of consideration in the Acquisition that a whole share of 21CF common stock would have been exchanged for before giving effect to the Distribution, because the consideration that holders will receive in the Acquisition is automatically adjusted pursuant to the Merger Agreement to take the Distribution into account by multiplying the value of such consideration by the Distribution Adjustment Multiple.

Ummm….

Whatever that means, a shareholder with 100 shares of 21st Century Fox will receive 33 shares of new Fox Corporation. Seriously, though, the 0.263183 ratio is the percentage of shareholder’s tax basis on 21st Century Fox stock that should be allocated to new Fox Corporation stock. The remainder of the basis should be applied to the Disney stock and cash received later this week.

Despite the flurry of activity, the transaction will have no effect on the S&P 500 index. According to S&P’s press release, the new Fox will just replace Twenty-First Century Fox and ‘for index purposes, S&P DJI considers Fox Corp. to be the surviving entity of Twenty-First Century Fox and therefore both the Class A and Class B common stock lines will continue to be included in the S&P 500.’ The S&P 100 will change though and Adobe (ADBE) will take Twenty First Century Fox’s place. The new company is big, but apparently not big enough.

Disclosure: Author holds shares of DIS.