The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Jennifer Saba

NEW YORK, June 15 (Reuters Breakingviews) - Lachlan Murdoch is putting his stamp on Fox FOXA.O. The U.S.-based broadcaster led by the media scion agreed to buy streaming company Roku ROKU.O for $22 billion in a bid to expand its advertising and sports businesses. The tough part will be persuading investors that a cunning seller can also be a shrewd buyer.

The owner of Fox News will pay $160 in cash and stock for each Roku share, a premium of 34% to the target's undisturbed price last week before news surfaced about a possible sale. Under the structure, Fox shareholders would own 73% of the enlarged company while Roku's hold the rest.

Started 24 years ago inside Netflix NFLX.O, the now-independent Roku counts 100 million households using its devices and service to access everything from cable bundles to HBO and YouTube. It also operates a free ad-supported channel that competes with Fox rival Tubi. Together, they will account for 30% of the combined company's revenue, moving it away from cable-dependent sales. Showcasing Fox programming such as National Football League games on Roku in theory should also help boost advertising.

Although the logic adds up, the numbers don't. Roku’s operating profit is on track to double, to $1 billion, by 2028, according to forecasts compiled by Visible Alpha. Add $400 million of promised cost savings, tax the sum at 21% and the implied return would be a measly 5%. Roku's weighted average cost of capital is 9%, Morningstar analysts estimate.

What's more, Lachlan has lined up some $12 billion of debt to help fund the deal. It will raise leverage to almost 3 times EBITDA from less than 1 time.

Fox lost 15% of its market value, or about $4 billion, after unveiling the acquisition. The company's spotty buying record, which included the ill-fated social media network MySpace and Wall Street Journal parent company Dow Jones, maybe triggered long-standing shareholders. They have experienced a recent run of more sensible capital deployment, including walking away from an $80 billion purchase of Time Warner.

Rupert, Lachlan's father, proved to be a craftier builder, tactical investor and seller. His most impressive decision was to offload Fox's entertainment and international assets to Walt Disney for $71 billion during the market's 2019 peak. Instead, he focused on news and sports as peers took on mighty Netflix. It's understandable that Lachlan would want to step out of his father's long shadow at Fox. This record-size Roku deal, however, threatens to make more of a blemish than a beauty mark.

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CONTEXT NEWS

Fox said on June 15 it had agreed to buy TV streaming service Roku for $22 billion, including debt to expand its advertising and sports programming.

Under the terms of the transaction, Fox will pay $96 in cash and 0.9693 shares of Fox Class A common stock for each Roku Class A and Class B share, or $160 apiece.

Upon closing, Fox shareholders would own 73% of the enlarged company and Roku shareholders would hold the remaining 27%. Roku Founder, Chair and Chief Executive Anthony Wood is slated to have a role at the combined company and to join Fox's board of directors.

Morgan Stanley is providing $12 billion in bridge financing to fund the deal. Fox anticipates $400 million of annual cost savings.

Allen & Co and Morgan Stanley are advising Fox, and Qatalyst Partners is advising Roku.