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Analyst Likes Possible Deal Between Disney and Fox

At least one Wall Street analyst is taking a closer look at the potential deal in which The Walt Disney Co. would acquire most of the businesses of 21st Century Fox, and he likes what he sees.

The blockbuster report by CNBC that Disney could acquire Fox’s movie, studio, non-sports network and distribution assets sent TV stocks higher in late trading Monday.

In a report Monday, Omar Sheikh of Credit Suisse said it was “hard to argue against the rationale for this deal.” Sheikh put a $47 billion price tag on the transaction and said it could easily be financed by Disney and would be welcomed by both sets of shareholders.

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It “would also drive a re-rating of the whole sector, in our view,” Sheikh added.

Spokespeople for both Disney and Fox declined to comment.

Sheikh said the strategic benefit for Disney would be providing greater scale to invest in original content and much stronger over-the-top distribution at a time when traditional distribution platforms are shrinking.

The deal would give Disney distribution assets including BAMTech and Hotstar, 60% of Hulu and 39% of NOW TV. “Investors are likely to believe the combined company is in a structurally much stronger position to exploit the growth of video consumption online than either of the companies are apart," Sheikh said.

Sheikh said he is surprised that the Murdoch family, which controls 21st Century Fox, would consider giving up control of the company. He assumes Fox shareholders would get equity in the larger Disney.

Fox would continue to own its broadcast network and TV stations, cable news networks and sports businesses.

Sheikh warned that a transaction might attract antitrust review.

But word of the deal helped other TV stocks, which have mostly been depressed in an environment of shrinking pay TV subs and a stagnant advertising market.

At Monday’s close, Fox jumped 8.96% to $26.62, AMC Networks rose 5.37% to $50.05, Viacom gained 3.91% to $24.18, Discovery Communications was up 3.51%, CBS increased 2.82% to $56.96 and Disney was up 2.03% to $100.64.

Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.