Analyst floats idea of Apple buying Disney to make 'tech/media juggernaut'

AppleInsider · April 13, 2017 12:56PM

A new analyst report suggests that Apple should acquire long-time media partner Disney to smooth out seasonal concerns about earnings and make a massive end-to-end media development and delivery platform -- but this is not the first time this unlikely scenario has been bandied about.

In a research report provided to AppleInsider by RBC Capital markets, analyst Amit Daryanani sees a "confluence of events" involving potential cash repatriation that could end up seeing Apple buying Disney. A potential buyout would "instantly scale AAPL's services, content, and media portfolio," strengthen Apple's already iconic brand, and would leapfrog Amazon, Netflix, and YouTube's offerings in one fell swoop.

Daryanani assumes that Apple would pay about a 40 percent premium on top of Disney's current price, putting it at around $157 per share. This would tap most of Apple's $200 billion available for acquisitions, and would require a significant debt acquisition to complete.

Other benefits to Apple cited in the report are global sports rights given that Disney owns sports network ESPN, a proving ground for technologies at Disney parks like augmented reality and virtual reality, product diversification, and unspecified cost synergies. As a result, Daryanani sees Apple stock climbing nearly instantly about 25 percent after any deal with Disney.

Besides just Disney-branded properties, the company owns "Star Wars" franchise producer Lucasfilm including special effects studio Industrial Light & Magic, "Thor: Ragnarok" developer Marvel Studios, ABC television, A&E Networks, and Pixar Animation Studios, amongst others. Also included in any deal would be the several Disney tourist attractions, a giant retail and merchandising arm, and a massive patent portfolio.

Apple founder and CEO Steve Jobs founded Pixar Animation Studios. Following Pixar's merger with Disney in 2006, Jobs joined the Disney board of directors. At the time of Jobs' death, his stake in Disney was said to exceed $4.6 billion.

As Apple fought to stay alive in the mid-'90s, rumors frequently circulated that Disney was examining Apple for an acquisition target. More recently, after Apple's ascension after the iPod and iPhone successes, the speculation shifted in the other direction, leading to off-and-on speculation for the last decade about Apple and Disney merging to form a company with a trillion-dollar market capitalization.

Even Daryanani sees the deal as just barely possible but still unlikely. The report cites a "greater than 0 percent" chance that Apple is considering the buy, but conversations suggest that there is far more consideration being given to an acquisition than there was six months ago.

freeper · April 13, 2017 1:18PM

Anti-trust regulators, both domestic and foreign, would never approve. And Sony has shown what happens to tech companies when they try to transcend tech. Not only are they running the entertainment properties that they acquired (including Columbia Pictures, RCA/BMG and other record labels etc.) into the ground, but where once they are among the biggest and most powerful tech companies in the world - more so than Samsung, Google, Apple and Amazon - now they are pretty much just the PlayStation and the #2 maker of TVs (behind Samsung). They don't even make PCs anymore, and where they had the potential to rival Samsung in the mobile device market, they so badly bungled marketing and product development efforts that now they don't even try to sell smartphones outside Japan, and it is unclear whether they still make tablets at all. Sony proves that if you try to dominate everything you become good and competitive at nothing. They are certainly a cautionary tale for Apple and all the people who claim that Apple should buy Disney or even Netflix. If you ask me, Google is another cautionary tale. Of all their efforts to expand beyond their initial search engine/web browser/email product - synergy that they did not innovate as AOL first started combining the 3 back in the early 90s - pretty much everything else they have tried their hands at since then but YouTube and Android have failed. And even those have qualifiers. Google bought an already successful YouTube only after years of trying and failing to compete with them with "Google Video". Android only succeeded because of the efforts of Samsung and the other hardware partners. That is why the other Android products where Google hasn't given manufacturers the freedom that they gave them with smartphones and tablets to control their own products so long as they retained the mandatory apps and Google branding i.e. Android Wear, Android TV etc. have failed, as has Google Fiber, Google Fi, the Nexus/Pixel programs, Google Home, Google VR, Google+ and so on. Even their Google Cloud venture, something that they should be great at, has been only a small success at best. Apple should not try to be Sony or Google.

wood1208 · April 13, 2017 1:21PM

This ain't going to happen. Disney is a global brand which enhances Apple's brand to keep in front of consumers with Theme park, Movies, Sports, etc but Apple is known for buying smaller niche tech companies and put it to use for better product offerings. Disney doesn't fit into Apple's investment philosophy, way expensive(DIS:$113) than in past.

randominternetperson · April 13, 2017 1:28PM

freeper said:

Anti-trust regulators, both domestic and foreign, would never approve.

This would present zero anti-trust problems. Apple and Disney have virtually no overlap in their business lines. Therefore, in no market would this result in a reduction in competition. This would be like Wal-Mart buying General Motors or Google buying Boeing--a merger of two behemoths but not the combination of two competitors.

But just to be clear, this ain't going to happen.

freeper · April 13, 2017 1:37PM

randominternetperson said:

freeper said:

Anti-trust regulators, both domestic and foreign, would never approve.

This would present zero anti-trust problems. Apple and Disney have virtually no overlap in their business lines. Therefore, in no market would this result in a reduction in competition. This would be like Wal-Mart buying General Motors or Google buying Boeing--a merger of two behemoths but not the combination of two competitors.
But just to be clear, this ain't going to happen.

While what you are saying is perfectly factual, the regulators have stepped in to prevent companies from getting too big before. Also, please note that I wrote "foreign and domestic." Apple and Disney are global companies, Disney even more so than Apple. So it would not just be America's anti-trust definitions they would have to clear, but those in countries that are far less pro-business and regulation-skeptical, namely the EU. Note that the U.S. government has yet to rule that Google is a monopoly, for instance, but the EU already has (Google is appealing/stalling). The EU even has made ridiculous claims of Apple "monopolizing" their own app store and tech! So I would not imagine their looking very fondly on Apple and Disney merging.

Fatman · April 13, 2017 1:43PM

Probably no anti trust - just a huge price tag. The combination would be incredibly powerful. It would be great to have competitors pay Apple for content rights. Imagine 'Apple Land' as a section of Disney World or Apple product placements in the Star Wars Movies - LOL! Probably very unlikely though.

[Deleted User] · April 13, 2017 1:46PM

wood1208 said:

This ain't going to happen. Disney is a global brand which enhances Apple's brand to keep in front of consumers with Theme park, Movies, Sports, etc but Apple is known for buying smaller niche tech companies and put it to use for better product offerings. Disney doesn't fit into Apple's investment philosophy, way expensive(DIS:$113) than in past.

Was Beats a small niche tech company?

tmay · April 13, 2017 1:52PM

Analysts sniffing glue again. I thought that wasn't a "thing" anymore. Why not just buy Disney, then Amazon and get it over with? After that, there's always IBM, Netflix and Tesla. Cautionary tale told in Wall-e; don't get too big to survive.

cali · April 13, 2017 1:57PM

Would be perfect. Luckily they are already partners.

78Bandit · April 13, 2017 2:04PM

randominternetperson said:

freeper said:

Anti-trust regulators, both domestic and foreign, would never approve.

This would present zero anti-trust problems. Apple and Disney have virtually no overlap in their business lines. Therefore, in no market would this result in a reduction in competition. This would be like Wal-Mart buying General Motors or Google buying Boeing--a merger of two behemoths but not the combination of two competitors.
But just to be clear, this ain't going to happen.

The statement "this would present zero anti-trust problems" is based on the assumption both companies would continue to work completely independently of each other and would enter into licensing & distribution agreements with other companies (Samsung or CBS Corporation for example) on the same terms and conditions as the now related companies. The only way to ensure that happens is to have anti-trust regulators scrutinize transactions between the two companies to ensure they are done at arms length. Even though there is little overlap in their current business lines there are still a multitude of ways consumer choice could be harmed by the combined company.

In your example what would happen if Wal-Mart bought General Motors but followed up by saying the only place you can buy a GM product is through Wal-Mart? It is certainly possible if Apple bought Disney that it would institute a period of exclusivity for digital distribution of Disney/ABC/Marvel movies to Apple products. That would be harmful to consumers who use competing products. Maybe they would also offer substantial discounts to Disney theme parks only if you paid for the tickets with ApplePay which would be harmful to Samsung Pay consumers.

Horizontal consolidation of direct competitors is not the only anti-trust issue. The potential for vertical integration after-the-fact has to be considered as well.

ireland · April 13, 2017 2:05PM

You know what else floats?

thewhitefalcon · April 13, 2017 2:05PM

Because AOL-TimeWarner worked out so well, right?

Stupid, stupid idea.

rotateleftbyte · April 13, 2017 2:09PM

What a great Idea. This would be 'The Big One', a magnitude 9.9 earthquake. Hollywood would combust like a magnesium flash gun.
I'd expect them to float off the theme parks though.
At least then the other studios and creators would have to engage with apple instead of ignoring them.

Would it happen?
Probably not.

daven · April 13, 2017 2:10PM

Naw... Apple should buy Google so they have a monopoly on the smartphone market again. /s

carnegie · April 13, 2017 2:12PM

As an AAPL shareholder, I would not be in favor of this - at least, not as a cash deal at around $157 per DIS share. As a merger or as a largely stock deal? I'd have to think about that some more.

At $157 a share, Disney would cost around $250 billion. Apple has around $160 billion in cash net of debt. If we're talking about using repatriated cash, which the OP suggests, that pile would likely be somewhat smaller due to some taxes being paid on those remitted foreign earnings. At 10% that would cost around $20 billion. And in acquiring Disney, Apple would be taking on a little bit of additional debt (net of cash) that Disney has. Could Apple do it? Sure. But I don't think it would and I don't think I'd want it to. The debt that Apple would have to take on is not my only concern.

Also... for accuracy's sake, though it isn't that important... at the time of his death Mr. Jobs' stake in Disney was worth around $4.35 billion.

rogifan_new · April 13, 2017 2:18PM

Stupid. Apple doesn't need to own a media conglomerate. Talk about getting out of your core competencies. My god Apple can't even update their professional computer lines on a regular basis but integrating a massive company like Disney is a good idea? The only people who think so are those who only care about the stock price.

tmay · April 13, 2017 2:21PM

carnegie said:

As an AAPL shareholder, I would not be in favor of this - at least, not as a cash deal at around $157 per DIS share. As a merger or as a largely stock deal? I'd have to think about that some more.

At $157 a share, Disney would cost around $250 billion. Apple has around $160 billion in cash net of debt. If we're talking about using repatriated cash, which the OP suggests, that pile would likely be somewhat smaller due to some taxes being paid on those remitted foreign earnings. At 10% that would cost around $20 billion. And in acquiring Disney, Apple would be taking on a little bit of additional debt (net or cash). Could Apple do it? Sure. But I don't think it would and I don't think I'd want it to. The debt that Apple would have to take on is not my only concern.

Also... for accuracy's sake, though it isn't that important... at the time of his death Mr. Jobs' stake in Disney was worth around $4.35 billion.

Laureen Powell Jobs has a currently estimated net worth of $14.1 B and Disney is the bulk of that. Laureen bought a property in Florida in an equestrian community so that one of her daughters could train with her competition. That probably didn't leave a dent.

freeper · April 13, 2017 2:25PM

thewhitefalcon said:

Because AOL-TimeWarner worked out so well, right?

Stupid, stupid idea.

Excellent example, along with that of Yahoo and Sony.

wrbluepearl · April 13, 2017 2:28PM

<nitpick>Pixar was the Graphics Group portion of Lucasfilm; Ed Catmull and Alvy Ray Smith are considered the founders. Pixar became a separate company in 1986 when Steve Jobs bought it on the cheap from Lucas (who was suffering a cash crunch).</nitpick>

And yes, the idea that Apple would buy Disney is quite possibly the stupidest thing I've heard this week.

freeper · April 13, 2017 2:32PM

daven said:

Naw... Apple should buy Google so they have a monopoly on the smartphone market again. /s

I know you are being sarcastic but never at any time did Apple have a monopoly on the smartphone market. As recently as 2010, Blackberry sold more smartphones annually than Apple. So while Apple certainly deserves credit for inventing the smartphone, the consolidation of the smartphone market into iOS and Android, driving established players like Blackberry, Nokia and Microsoft off the scene entirely, was primarily due to the success of Android. Had it not been for Android, either Symbian or Microsoft Mobile would have succeeded. (Ironically, the same company, Nokia, represented the failure of both.)

http://www.gartner.com/newsroom/id/1543014

mike1 · April 13, 2017 2:33PM

adm1 said:

wood1208 said:

This ain't going to happen. Disney is a global brand which enhances Apple's brand to keep in front of consumers with Theme park, Movies, Sports, etc but Apple is known for buying smaller niche tech companies and put it to use for better product offerings. Disney doesn't fit into Apple's investment philosophy, way expensive(DIS:$113) than in past.

Was Beats a small niche tech company?

Small, yes.
Niche, in the scheme of things yes.
Tech, yes but very low tech.

Analyst floats idea of Apple buying Disney to make 'tech/media juggernaut'

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