Acquisitions

BAMTech

On September 25, 2017, the Company acquired an additional 42% interest in BAMTech, a streaming technology and content delivery business, from an affiliate of Major League Baseball (MLB) for $1.6 billion due in January 2018. The acquisition increased our interest from 33% to 75%, and as a result, we began consolidating BAMTech. The Company paid $1.0 billion for its original 33% interest in BAMTech. The acquisition supports the Company’s strategy to launch DTC video streaming services.

Upon consolidation, the Company recognized a non-cash gain of $255 million ($162 million after tax) as a result of increasing the carrying value of the Company’s original 33% interest to $1.2 billion, its estimated fair value implied by the acquisition price of our additional 42% interest. The gain was recorded in “Other income, net” in the fiscal 2017 Consolidated Statement of Income.

The fair value of BAMTech (purchase price) is estimated to be $3.9 billion and represents the sum of (i) the $1.6 billion payment for our newly acquired 42% interest, (ii) the $1.2 billion estimated fair value of the Company’s original 33% interest, and (iii) the $1.1 billion estimated fair value of the remaining 25% noncontrolling interests.

Based on a preliminary purchase price allocation, $3.6 billion was allocated to goodwill (approximately half of which is deductible for tax purposes) with the remainder primarily allocated to identifiable intangible assets. Goodwill reflects the synergies expected from rationalization of the Company’s current digital distribution services, enhanced personalization of content and advertising from access to DTC user data, and the ability to leverage BAMTech’s platform expertise for the Company’s DTC services. Goodwill also includes technical knowhow associated with BAMTech’s assembled workforce. We are in the process of finalizing the valuation of the acquired assets, assumed liabilities, and noncontrolling interests.

BAMTech’s noncontrolling interest holders, MLB and the National Hockey League (NHL), have the right to sell their shares to the Company in the future. MLB can generally sell their shares to the Company starting five years from and ending ten years after the acquisition date at the greater of fair value or a guaranteed floor value ($563 million accreting at 8% annually for eight years). The NHL can sell their shares to the Company in fiscal 2020 for $300 million or in fiscal 2021 for $350 million.

Based on the terms of the noncontrolling interests, their acquisition date fair value of $1.1 billion was recorded as “Redeemable noncontrolling interests” in the Company’s Consolidated Balance Sheet. The fair values of the noncontrolling interests were calculated using an option pricing model. The MLB noncontrolling interest fair value generally reflects the net present value of MLB’s guaranteed floor value, while the NHL noncontrolling interest reflects their share of the $3.9 billion BAMTech value.

The Company has the right to purchase MLB’s interest in BAMTech starting five years from and ending ten years after the acquisition date at the greater of fair value or the guaranteed floor value. The Company has the right to acquire the NHL interest in fiscal years 2020 and 2021 for $500 million.

As a result of the MLB and NHL sale rights, the noncontrolling interests will generally not be allocated BAMTech losses. Prospectively, the Company will record the noncontrolling interests at the greater of (i) their acquisition date fair value adjusted for their share (if any) of earnings, losses, or dividends or (ii) an accreted value from the date of the acquisition to the earliest redemption date. The accretion of the MLB interest to the earliest redemption value in five years will be recorded using an interest method. As of September 30, 2017, the redeemable noncontrolling interest subject to accretion would have had a redemption amount of $563 million if it were currently redeemable. Adjustments to the carrying amount of redeemable noncontrolling interests will increase or decrease income available to Company shareholders through an adjustment to “Net income attributable to noncontrolling interests” on the Consolidated Statement of Income.

The Company is negotiating to provide the noncontrolling interest holder in ESPN a portion of the Company’s share of the BAMTech DTC sports business at a price that is consistent with the amount the Company invested. If such transaction is finalized, their investment would be recorded as a noncontrolling interest transaction when consummated.

The revenue and costs of BAMTech included in the Company’s Consolidated Statement of Income for fiscal 2017 were not material.

Vice

Vice is a media company targeting a millennial audience through news and pop culture content and creative brand integration. During fiscal 2016, A+E acquired an 8% interest in Vice in exchange for a 49.9% interest in one of A+E’s cable channels, H2, which has been rebranded as Viceland and programmed with Vice content. As a result of this exchange, A+E recognized a net non-cash gain based on the estimated fair value of H2. The Company’s $332 million share of the Vice Gain was recorded in “Equity in the income of investees” in the Consolidated Statement of Income in fiscal 2016. At September 30, 2017, A+E had an 18% interest in Vice.

During fiscal 2016, the Company acquired a direct interest in Vice for $400 million of cash, and at September 30, 2017 owned a 10% interest.

The Company accounts for its interest in Vice as an equity method investment.

Hulu

At the end of fiscal 2015, the Company had a 33% interest in Hulu, a joint venture owned one-third each by the Company, Twenty-First Century Fox, Inc. (Fox) and Comcast Corporation. In August 2016, Time Warner, Inc. (TW) acquired a 10% interest in the venture from Hulu for $583 million diluting the Company’s ownership interest to 30%. For not more than 36 months from August 2016, TW may put its shares to Hulu or Hulu may call the shares from TW under certain limited circumstances arising from regulatory review. The Company and Fox have agreed to make a capital contribution for up to approximately $300 million each if required to fund the repurchase of shares from TW. The August 2016 transaction resulted in a deemed sale by the Company of a portion of its interest in Hulu at a gain of approximately $175 million. The Company expects to recognize the gain if and when the put and call options expire.

In addition, the Company has guaranteed $113 million of Hulu’s $338 million term loan, which is due in August 2022.

The Company accounts for its interest in Hulu as an equity method investment.

Goodwill

The changes in the carrying amount of goodwill for the years ended September 30, 2017 and October 1, 2016 are as follows:



	Media Networks			Parks and Resorts		Studio Entertainment			Consumer Products & Interactive Media			Unallocated ⁽¹⁾		Total
Balance at Oct. 3, 2015	$	16,354		$	291	$	6,836		$	4,345		$	—	$	27,826
Acquisitions	1			—		1			—			—		2
Dispositions	—			—		—			—			—		—
Other, net	(10		)	—		(7		)	(1		)	—		(18		)
Balance at Oct. 1, 2016	$	16,345		$	291	$	6,830		$	4,344		$	—	$	27,810
Acquisitions	—			—		—			—			3,600		3,600
Dispositions	—			—		—			—			—		—
Other, net	(20		)	—		(13		)	49			—		16
Balance at Sept. 30, 2017	$	16,325		$	291	$	6,817		$	4,393		$	3,600	$	31,426


⁽¹⁾	Goodwill will be allocated to the segments once the BAMTech purchase price allocation is finalized.