Key Points
Fox announced the acquisition of Roku for $22 billion.
The deal is getting funded through cash and stock.
Shares have fallen, which is a usual occurrence after large mergers are announced.
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Shares of Fox Corp (NASDAQ: FOX) sank 24.9% this week, according to data from S&P Global Market Intelligence. The TV and live sports giant made a splash by announcing an acquisition of Roku (NASDAQ: ROKU) for $22 billion in a cash and stock deal.
Here's why investors are soured on the deal, and whether it gives investors a buying opportunity into the streaming TV market.
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A $22 billion Roku acquisition
Roku is being acquired by Fox in a cash-and-stock deal with an enterprise value (which accounts for Roku's net cash on its balance sheet) of $22 billion. 60% of the deal will be in cash, funded by new debt taken on by Fox and by issuing new shares of Fox.
The companies are pitching the deal as a way to get a better advantage within the streaming TV market. Roku has over 100 million active users of its smart TVs, along with a fast-growing ad-supported streaming channel and its own advertising technology. Fox has a strong foothold within the live sports and ad-supported streaming space with its Tubi network. Utilizing Roku's advertising technology and reach could help the combined companies maximize revenue.
Image source: Getty Images.
Why is the stock down?
Even though the acquisition makes sense on paper, investors are always skeptical of acquisitions, especially those that dilute existing shareholders or take on a lot of new debt. In this case, Fox is utilizing both methods to acquire Roku.
However, when looking at the combined business, there is a lot to like if Fox can supercharge its advertising sales with Roku's digital advertising technology. It might be time to take a closer look at Fox stock after this merger announcement.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roku. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
