3. Case: Acquisition of 21st Century Fox by Disney

On March 20, 2019, Walt Disney Co. closed its acquisition of the major entertainment assets of 21^st Century Fox (TFCF), combining some of Hollywoods best-known studios, characters and franchises as media companies look to get bigger to better compete in a world where shows and movies are increasingly streamed.

a. In order to determine how much to pay for this acquisition, Disney must evaluate the fair value of the net assets of TFCF. Find the last 10-Q of TFCF filed on February 6, 2019 before the acquisition below:

https://www.sec.gov/Archives/edgar/data/1308161/000156459019002155/fox-10q_20181231.htm

What is the book value of TFCFs intangible assets as of December 31, 2018? Attached is Disneys 10-K for fiscal year 2019. Read the discussions related to the acquisition of TCFC in Note 4 (Page 95). What is the fair value assigned to TFCFs intangible assets? Assume there is no significant change in the composition of TFCFs intangible assets from the balance sheet date to the acquisition date, what are the possible reasons to explain the difference between book value and fair value?

b. What is the total acquisition purchase price? What is the premium paid in this transaction? What are the possible reasons why Disney was willing to pay this premium?

c. What is Disneys ownership in Hulu before the acquisition? What method should Disney use to account for this investment? What is Disneys ownership in Hulu after the acquisition? How should Disney account for this investment? Explain in a couple of sentences.

d. Assume that in 2018, Hulu reported net income of $800 million. The company declared and paid total cash dividends of $50 million. What journal entries should Disney make?