Fox closes its Roku purchase, borrowing $10.4 billion on the first day

Fox Corporation (Nasdaq: FOXA, FOX) completed its acquisition of Roku (Nasdaq: ROKU) on November 6, with Roku holders receiving $95.30 in cash and 0.9799 Fox Class A shares for each share, according to Fox's closing release. Roku stock stopped trading on Nasdaq that day.

The price changed between June and closing

When the two companies announced the deal on June 15, Fox said it would pay $96.00 in cash and 0.9693 Fox Class A shares per Roku share, a value of $160.00 per share and about $22 billion in enterprise value. The closing release states $95.30 and 0.9799 shares instead.

Fox now expects its stockholders to own about 74% of Fox common stock and former Roku stockholders about 26%. In June the expected split was 73% and 27%. The closing release does not say why the cash and share amounts differ from the June figures.

$10.4 billion of borrowing went in on the day the deal closed

In an 8-K filed with the SEC, Fox said it borrowed $2.0 billion under an amended term loan and $8.4 billion under a bridge facility on the closing date, and used the proceeds to pay part of the cash consideration. That is $10.4 billion in total (computed). The term loan commitment had been $1.0 billion before the November 5 amendment.

The bridge facility matures 364 days after the closing date, and Fox may repay it in whole or in part at any time. It carries a covenant requiring an operating income leverage ratio of 4.5 to 1.0. Fox also entered a $1.5 billion five-year revolving credit facility on November 6.

In June, Fox said it had $12.0 billion of committed bridge financing and expected pro forma net leverage of about 2.8x at closing, counting 50% credit for run-rate cost synergies. Neither the closing release nor the 8-K gives a leverage figure at closing.

What Fox says it will get, and who runs it

Fox said it expects about $400 million of run-rate cost synergies within two years of closing, plus possible revenue upside, and expects the deal to be accretive to free cash flow per share by the second full year after closing. Roku's platform reaches more than 100 million households, the release said.

Roku founder Anthony Wood joins Fox's board, which grew to eight directors, and becomes co-chair of FOX Digital Platforms, a new division that includes Roku, Tubi, FOX One and Red Seat Ventures. Paul Cheesbrough is co-chair and CEO of the division. Wood will not be paid for his board service, and his pay for the division role had not been set, the 8-K said.

Fox said it will keep Roku open to other content partners. Wood said the company is committed to "staying open to every content partner."

We would watch how fast the bridge is replaced, not the synergy headline

We think the closing settles the strategy question and opens a financing one. Fox is judged on capital allocation, and it has now borrowed $10.4 billion that must be refinanced or repaid within 364 days, while telling shareholders in June that buybacks and dividends would continue.

The opportunity is the $400 million of cost savings: if Fox reaches it inside two years, free cash flow per share could improve as the company projects. The threat is financing cost and time, because the filings give no refinancing plan and no closing leverage figure. We would weigh the first quarterly report that includes Roku, for debt, interest expense and any change in buybacks, ahead of the synergy target. Our view would change if Fox shows leverage near its June estimate of 2.8x while holding its capital return.

The view in this final section is FinanceInTime's editorial opinion, for information only. It is not investment, tax, legal or other advice, and it does not take your circumstances into account. Forecasts are uncertain and past results do not guarantee future ones.