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 (paid in January 2018). The acquisition increased our interest from 33% to 75%, and as a result, we began consolidating BAMTech during the fourth quarter of fiscal 2017. The estimated acquisition date fair value of BAMTech is $3.9 billion.

BAMTech’s noncontrolling interest holders, MLB and the National Hockey League (NHL), have the right to sell their interest to the Company in the future. MLB can generally sell their interest to the Company starting five years from and ending ten years after the September 25, 2017 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 its interest to the Company in fiscal 2020 for $300 million or in fiscal 2021 for $350 million. Accordingly, these interests are recorded as “Redeemable noncontrolling interests” in the Company’s Condensed Consolidated Balance Sheet. In addition, ESPN’s noncontrolling interest holder has a 20% interest in BAMTech’s direct-to-consumer sports business.

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 or 2021 for $500 million.

The acquisition date fair value of the noncontrolling interests was estimated at $1.1 billion, which was calculated using an option pricing model and generally reflected the net present value of the expected future redemption amount.

As a result of the MLB and NHL sale rights, the noncontrolling interests will generally not be allocated BAMTech losses. 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 (i.e. in five years after the acquisition date) will be recorded using an interest method. As of June 30, 2018, the redeemable noncontrolling interest subject to accretion would have had a redemption amount of $597 million if it were redeemed at that time. Adjustments to the carrying amount of redeemable noncontrolling interests increase or decrease income available to Company shareholders through an adjustment to “Net income attributable to noncontrolling interests” on the Condensed Consolidated Statement of Income.

We have allocated $3.5 billion of the purchase price to goodwill (approximately half of which is deductible for tax purposes) with the remainder primarily allocated to identifiable intangible assets.

The revenue and costs of BAMTech included in the Company’s Condensed Consolidated Statement of Income for the nine months ended June 30, 2018 were approximately $0.3 billion and $0.5 billion, respectively.

Twenty-First Century Fox

On December 14, 2017, the Company and Twenty-First Century Fox, Inc. (“21CF”) announced a definitive agreement (the “Original Merger Agreement”) for the Company to acquire 21CF.

On June 20, 2018, the Company and 21CF entered into an Amended and Restated Agreement and Plan of Merger (“Amended Merger Agreement”) for the Company to acquire 21CF. The Amended Merger Agreement amends and restates in its entirety the Original Merger Agreement.

Prior to the acquisition, 21CF will transfer a portfolio of its news, sports and broadcast businesses, including the Fox News Channel, Fox Business Network, Fox Broadcasting Company, Fox Sports, Fox Television Stations Group, FS1, FS2, Fox Deportes, Big Ten Network and certain other assets and liabilities into a newly formed subsidiary (“New Fox”) (the “New Fox Separation”) and distribute all of the issued and outstanding common stock of New Fox to shareholders of 21CF (other than holders that are subsidiaries of 21CF) on a pro rata basis (the “New Fox Distribution”). Prior to the New Fox Distribution, New Fox will pay 21CF a dividend in the amount of $8.5 billion. As the New Fox Separation and the New Fox Distribution will be taxable to 21CF at the corporate level, the dividend is intended to fund the taxes resulting from the New Fox Separation and New Fox Distribution and certain other transactions contemplated by the Amended Merger Agreement (the “Transaction Tax”). 21CF will retain all assets and liabilities not transferred to New Fox, which will include the 21CF film and television studios, certain cable networks (including FX and National Geographic) and 21CF’s international television businesses.

Following the New Fox Separation and the New Fox Distribution, WDC Merger Enterprises I, Inc., a wholly owned subsidiary of TWDC Holdco 613 Corp (“New Disney”), a direct wholly owned subsidiary of the Company, will be merged with and into the Company, with the Company continuing as the surviving corporation (the “Disney Merger”), and WDC Merger Enterprises II, Inc., a wholly owned subsidiary of New Disney, will be merged with and into 21CF, with 21CF continuing as the surviving corporation (the “21CF Merger and together with the Disney Merger, the “Mergers”). As a result of the Mergers, the Company and 21CF will become direct wholly owned subsidiaries of New Disney, which will be renamed “The Walt Disney Company” concurrently with the Mergers. Each share of Disney stock issued and outstanding immediately prior to the Disney merger will be converted into one share of New Disney stock of the same class.

The Boards of Directors of the Company and 21CF have approved the transaction. In order to seek approval from shareholders of 21CF and the Company, New Disney filed a Form S-4 Registration Statement (“S-4”) with the U.S. Securities and Exchange Commission (“SEC”), which was declared effective on June 28, 2018. The S-4 constitutes a prospectus for the registration of New Disney common stock to be delivered to 21CF shareholders pursuant to the Amended Merger Agreement as well as a joint proxy statement of the Company and 21CF. The consummation of the transaction is subject to various conditions, including, among others, (i) the consummation of the New Fox Separation, (ii) the receipt of certain tax opinions with respect to the treatment of the transaction under U.S. and Australian tax laws, and (iii) the receipt of certain regulatory approvals and governmental consents. The closing condition relating to the adoption of the Amended Merger Agreement by the requisite vote of shareholders of 21CF and the approval of the stock issuance by the requisite vote of the Company’s shareholders was satisfied on July 27, 2018

Upon consummation of the transaction, each issued and outstanding share of 21CF common stock (other than (i) treasury shares, (ii) shares held by 21CF subsidiaries and (iii) shares held by 21CF shareholders who have not voted in favor of the 21CF Merger and perfected and not withdrawn a demand for appraisal rights under Delaware law) will be exchanged for an amount (the “Per Share Value”), payable at the election of the holder thereof in either cash or shares of New Disney common stock. The Per Share Value is equal to fifty percent (50%) of the sum of (i) $38.00 plus (ii) the value of a number of shares of the Company’s common stock equal to an “exchange ratio” (determined based on the volume weighted average price of Disney common stock over the fifteen consecutive trading day period ending on (and including) the trading day that is three trading days prior to the date of the effective time of the 21CF Merger (“Average Company Stock Price”)). If the Average Company Stock Price is greater than $114.32, then the exchange ratio will be 0.3324. If the Average Company Stock Price is less than $93.53, then the exchange ratio will be 0.4063. If the Average Company Stock Price is greater than or equal to $93.53 but less than or equal to $114.32, then the exchange ratio will be an amount equal to $38.00 divided by the Average Company Stock Price. The merger consideration is subject to automatic proration and adjustment to ensure that the aggregate cash consideration (before giving effect to the adjustment for the Transaction Tax) is equal to $35.7 billion.

The exchange ratio may be subject to an adjustment based on the final estimate of the Transaction Tax and other transactions contemplated by the Amended Merger Agreement. The merger consideration in the Amended Merger Agreement was set based on an estimate of $8.5 billion for the Transaction Tax and will be adjusted immediately prior to consummation of the transaction if the final estimate of the Transaction Tax at closing is more than $8.5 billion or less than $6.5 billion. Such adjustment could increase or decrease the merger consideration, depending on whether the final estimate is lower or higher, respectively, than $6.5 billion or $8.5 billion. Additionally, if the final estimate of the Transaction Tax is lower than $8.5 billion, the Company will make a cash payment to New Fox reflecting the difference between such amount and $8.5 billion, up to a maximum cash payment of $2.0 billion.

As included in the S-4 filing, based on the number of shares of 21CF common stock outstanding as of May 29, 2018 and assuming an Average Company Stock Price of $103.926 (which was the volume weighted average price of the Company’s stock over the 20-trading day period ending on June 18, 2018), and assuming no adjustment for the Transaction Tax, New Disney would be required to issue approximately 343 million new shares of New Disney common stock to 21CF stockholders. The value at which New Disney will record the equity consideration will be based upon the Company’s stock price on the date the transaction closes. In addition, New Disney will assume 21CF’s net debt, which had a book value of approximately $13.2 billion and an estimated fair value of approximately $17.1 billion as of March 31, 2018 (approximately $23.9 billion of debt less approximately $6.8 billion in cash) if the Sky Acquisition (as defined below) is not completed or an estimated fair value of $49.3 billion of net debt (fair value of approximately $51.1 billion of debt less approximately $1.8 billion in cash) if the Sky Acquisition is completed.

Under the terms of the Amended Merger Agreement, Disney will pay 21CF $2.5 billion if the Mergers are not consummated under certain circumstances relating to the failure to obtain approvals, or if there is a final, non-appealable order preventing the transaction, in each case, relating to antitrust laws, communications laws or foreign regulatory laws. If the Amended Merger Agreement is terminated under certain other circumstances relating to changes in board recommendations and/or alternative transactions, the Company or 21CF may be required to pay the other party approximately $1.5 billion.

21CF currently has an interest of approximately 39% in Sky. In December 2016, 21CF announced the terms of an offer to acquire the fully diluted share capital of Sky which 21CF and its affiliates do not already own at a price of £10.75 per share, payable in cash, subject to certain payments of dividends (the “Sky Acquisition”). On April 25, 2018, Comcast announced an offer for the fully diluted share capital of Sky at an offer price of £12.50 per Sky share and, on July 11, 2018, Comcast increased its offer price to £14.75 per Sky share (the “Revised Comcast Sky offer”). The Revised Comcast Sky Offer was recommended by the Independent Committee of the Sky Board responsible for reviewing the terms of the offer.

On July 11, 2018, 21CF announced an increased offer price for Sky of £14.00 per share, payable in cash, subject to reduction if certain dividends or other distributions are paid by Sky. 21CF may elect not to increase the price offered by it in the Sky Acquisition. Any increase in the debt financing for the Sky Acquisition would require the Company’s consent, which we may elect not to provide. Any sale by 21CF of its interest in Sky would require the Company’s consent. Completion of the Sky Acquisition is not a condition to either party’s obligation to consummate the 21CF acquisition transaction. If the Sky Acquisition is not completed by 21CF for any reason, then upon consummation of the 21CF acquisition, New Disney would indirectly acquire 21CF’s approximately 39% interest in Sky.

On July 12, 2018, the Sky Acquisition received approval by the UK Secretary of State for Digital, Culture, Media and Sport. In connection with the approval sought from the UK Secretary of State for Digital, Culture, Media and Sport, 21CF has undertaken to the Secretary of State to separate the Sky News business into a separate company (“Sky News Newco”), and to transfer the shares in Sky News Newco to the Company or to an alternative suitable third party if the Company does not complete its acquisition of Sky News Newco within a specified period (“Sky News Divestment”). The Sky News Divestment is conditional upon the Sky Acquisition completing. 21CF and the Company have agreed to provide financial support to Sky News Newco at the current level of funding (adjusted by cost inflation) and further possible capital expenditures for a period of 15 years after the Sky News Divestment such that the total funds available for Sky News is no less than £100 million per year. The Company has undertaken to continue to operate Sky News for a period of 15 years after the Sky News Divestment and may only sell Sky News Newco with the approval of the Secretary of State.

The Sky Acquisition remains subject to the requisite approval of Sky shareholders unaffiliated with 21CF, as well as to certain other customary closing conditions.

Completion of the Sky Acquisition will not affect the amount or form of consideration that stockholders of 21CF receive in the 21CF Merger. In the event that the 21CF Merger is not completed due to the failure to obtain regulatory approvals or in certain other limited circumstances, the Company has agreed to reimburse 21CF for an amount equal to the difference between the cash consideration of £14.00 and £13.00 for each share of Sky purchased by 21CF pursuant to the Sky Acquisition, plus any interest and fees on such amount.

If the Sky Acquisition is not completed by 21CF and another party has not acquired more than 50% of the ordinary shares of Sky, in each case prior to the completion of the Mergers, New Disney will be required to make a mandatory offer for all the outstanding ordinary shares of Sky not already owned by 21CF. On July 13, 2018, the Panel on Takeovers and Mergers of the United Kingdom (the “U.K. Takeover Panel”), ruled that any such offer would be required to be made in cash and at a price of £14.00 for each ordinary share in Sky (the “July 13 Ruling”), which ruling was upheld on August 4, 2018 by the U.K. Takeover Panel’s Hearings Committee on appeal. It is expected that there will be a further appeal to the U.K. Takeover Appeal Board which could agree or disagree with the July 13 Ruling. In the event that there is a further appeal and the U.K. Takeover Appeal Board does not agree with the July 13 Ruling, the price at which New Disney may be required to make such mandatory offer may be increased or decreased.

Goodwill

The changes in the carrying amount of goodwill for the nine months ended June 30, 2018 are as follows:



	Media Networks		Parks and Resorts		Studio Entertainment		Consumer Products & Interactive Media		Unallocated ⁽¹⁾			Total
Balance at Sept. 30, 2017	$	16,325	$	291	$	6,817	$	4,393	$	3,600		$	31,426
Acquisitions	—		—		—		—		—			—
Dispositions	—		—		—		—		—			—
Other, net⁽¹⁾	3,078		—		363		39		(3,600		)	(120		)
Balance at June 30, 2018	$	19,403	$	291	$	7,180	$	4,432	$	—		$	31,306


⁽¹⁾	Other, net represents the allocation of BAMTech goodwill to segments based on the final purchase price allocation and also includes the impact of updates to our initial estimated fair value of intangible assets related to BAMTech.