Purchase gives Fox access to more than 100M households.

The purchase of Roku by Fox creates the third-largest player in the U.S. TV market by share of viewing, the firms said. Jenny Kane - AP FILE.

By Michelle F. Davis, Ryan Gould, Dinesh Nair and Hannah Miller | Bloomberg News

Fox Corp. agreed to acquire Roku Inc. in a deal valued at about $22 billion including debt, creating a new television juggernaut and marking a big push into ad-supported streaming.

The deal will blend Fox's sports, news and entertainment channels, including the free, ad-supported Tubi, with Roku's streaming platform of more than 100 million subscribers, the companies said in a statement Monday. The acquisition will create the third-largest player in the U.S. television market by share ofviewing, spanning broadcast, cable, local and streaming, the companies said.

"This combination will transform the scope of our company into high-growth verticals and yield a step change in our overall growth profile," Fox Chief Executive Officer Lachlan Murdoch said in the statement.

According to terms of the deal, Fox will pay $96 in cash and 0.9693 Fox Class A shares per Roku share. Roku shares jumped 20% on Friday after Bloomberg reported the company was in talks on a sale. On Monday, Roku shares slid about 1.9% to $140.95 as trading got underway in New York, while Fox shares tumbled 18%.

The sharp decline in Fox shares means the stock component of the agreement would be worth less if it holds through the closing of the deal. Based on where Fox traded Monday, the ratio of stock and cash would pay Roku shareholders was roughly $143 per share, about 2% above where Roku stock was trading.

The acquisition will help bolster the company's streaming business as consumers are increasingly shifting to cheaper ad-supported plans from traditional subscription models. Fox bought Tubi in 2020 and it has since become one of the company's major growth engines. In its last earnings report, Fox said Tubi had nearly 100 million monthly active users and that revenue had increased 23% in the fiscal third quarter. Fox's other streaming properties include Fox One and Fox Nation.

Combining Tubi with Roku creates a powerhouse of free, ad-supported streaming to help it better compete with Amazon.com Inc. and Netflix Inc. for advertising dollars. Fox plans to keep Tubi and the Roku Channel as separate offerings, Murdoch said on a conference call with analysts, adding that the two services are complementary.

Roku's streaming devices helped usher in the era of digital home entertainment by allowing consumers to stream content from apps, including Netflix and HBO Max, on their televisions, essentially transforming any TV into a smart TV. The company also sells branded TVs, projectors.

But Roku makes most of its money selling digital advertising and distributing streaming services, with device sales contributing a much smaller portion of revenue. The platform segment generated $4.1 billion, or 87.5%, of the company's revenue last year, slightly more than the previous year. The company keeps prices low on hardware to attract users, whose viewing habits it sells to advertisers, which is where the bulk of the growth potential is.

Streaming in the U.S. now accounts for nearly 50% of all TV viewing, executives said on the call. Advertising spending on connected televisions as a proportion of total TV advertising spending has grown to 41% in the last few years from 25%, the executives said, noting "that trend just continues."

"Consumers are gravitating toward simpler, more unified experiences on their favorite platforms like Roku," Murdoch said. "Advertisers are reaching similar conclusions, seeking large audiences, improved digital targeting and more consistent measurement across platforms."