The idea is not new, and has been rumored for years.
But now, a veteran analyst argues that an acquisition of Disney by Apple might create a lot of value for shareholders on both sides.
Laura Martin, Needham & Company’s media and entertainment analyst with more than 20 years in the industry, argues that the merger might generate value for Disney by incorporating revenues that are currently appropriated by partners or companies that benefit from their products. .
Laura defines this loss as value leakageor “value leakage”.
Here’s how it works: Disney attracts millions of viewers to Marvel movies and millions of visitors to its theme parks, but it doesn’t make a dollar from movie theater popcorn or plane tickets to Orlando. It also does not gain anything from the other attractions adjacent to its parks – but even favors its competitors, who take advantage of the flow of tourists.
Apple, by contrast, captures virtually all revenue generated within its ecosystem.
If there was a “leakage” of a value similar to that of Apple, which Laura calculates around 10%, Disney would have a market cap close to the US$ 2.6 trillion of Tim Cook’s company – instead of the US$ 180 billion of today.
But what Disney loses in value it gains in market allies, says Laura.
“The great thing regarding the Disney model is that it collects powerful friends,” writes Laura. “Its 100 years of existence is due in part to the fact that other companies and governments don’t want Disney to fail, because they benefit from a thriving Disney.”
That is, in this tradeoff, Disney loses revenue but gains in longevity. And therefore, it can be considered too big to fail. Who wouldn’t want a slice of such a business? Laura asks.
Today Apple and Disney are competitors in the services of streaming, but they have been great partners in the past; Steve Jobs would even have contributed to the acquisition of Marvel by predicting the potential of the brand in conversations with Bob Iger.
In conversation with Brazil Journal (video above)Laura recalls that several technology companies that were leaders in the past decade are now practically out of business, because “technology never stops evolving.”
Apple, therefore, can be outdone. “But Disney has a 100-year history, and their excellence in storytelling might maintain their competitive edge for another 100 years,” says Laura.
According to the analyst, technology incumbents take time to adapt, and this reduces the chance of being victorious over the decades. Because of this, she argues, “Apple’s competitive strength is likely to be more transient than Disney’s.”
For Apple, taking over Disney would have a huge other upside: the entertainment brand’s film portfolio, including the Marvel and Star Wars franchises.
Laura argues that Apple and Disney have complementary businesses and networks. There are several synergies, opening up the possibility of reducing costs with content production and distribution.
The analyst, who maintains a buy recommendation for Apple, says that the company’s shares might rise from 15% to 25% with the transaction, that is, its market value would rise somewhere between US$ 400 billion and US$ 650 billion. .
Therefore, even paying twice as much for Disney as the current amount of US$ 180 billion, Tim Cook’s company would still gain – and a lot.
Today Apple is trading at 6.1x its revenue, while Disney is trading at 2.2x. Thus, the purchase might be made through the issuance of shares and without diluting Apple’s current shareholders.
For the analyst, the eventual deal – whose main obstacle seems to be Apple’s culture of not making large acquisitions – would not have great difficulties in being approved by the regulators. “Traditionally, we have never seen restrictions when a distribution company acquires content producers. It’s a vertical transaction, with no big overlap.”
Giuliano Guandalini
