Mergers & Acquisitions · FOXA · ROKU
Fox's Roku deal adds sales but cuts profit per share on paper
Fox's new combined-company illustration shows how debt costs, acquisition accounting and extra shares weigh on earnings before expected savings.
Fox has bought Roku, adding a major streaming platform to its television business. Its newly filed merger illustration shows why adding sales does not immediately translate into more earnings for each Fox share.
The acquisition closed on November 6. A November 9 filing models the September quarter as if the companies had already been combined. It includes financing and purchase-accounting adjustments but excludes expected cost savings. These are illustrative figures, rather than an actual post-deal quarter or an earnings forecast.
More revenue, less profit per share
Research by Ticker Byline shows that the merger illustration lifts quarterly revenue about 31% above Fox's standalone result, while diluted earnings per share are about 34% lower.
| Measure | Fox standalone | Illustrative combined company |
|---|---|---|
| Revenue | 4,571 | 5,966 |
| Pretax profit | 1,283 | 1,094 |
| Diluted earnings per share | $2.20 | $1.45 |
Roku adds $187 million of pretax profit in the filing's presentation. Three deal adjustments more than absorb that contribution: $123 million of additional financing costs, $185 million of amortization of acquired intangible assets and $68 million of compensation expense tied to awards.
Amortization spreads the assigned value of assets such as customer relationships over time. It reduces accounting profit without requiring the same amount of cash to leave the business in that quarter.
The merger also increases the illustrative diluted share count by about 36%. The resulting profit has to be divided among more shares, helping explain why EPS falls more sharply than total pretax earnings.
The financing is now real
Fox drew an $8.4 billion bridge loan and a $2 billion term loan at closing. The bridge runs for 364 days, leaving a substantial refinancing task in the year after the acquisition.
The merger balance-sheet illustration puts borrowings at a $16.93 billion carrying value, compared with Fox's $6.61 billion at September 30. Cash falls to $2.89 billion from $4.54 billion in that illustration.
Those figures put the earlier quarter's strong cash generation in a different context. Our analysis of Fox's September results explains how World Cup, political and streaming advertising lifted the buyer's earnings before the deal closed.
The savings have yet to enter the calculation
Fox expects approximately $400 million of annual cost savings within two years. It also expects the acquisition to increase free cash flow per share by the second full year after closing. That cash-flow expectation uses a different measure from the accounting EPS in the merger table.
The economic case therefore rests on what Fox can earn from the enlarged platform, the savings it delivers and the cost of replacing the bridge debt.
The Fox company profile follows the completed transaction and borrowing. The Roku company profile retains the streaming business's latest standalone results and the final closing terms.