Could Apple buy Disney?
It would be a huge deal, worth hundreds of billions of dollars — and that’s what analysts are speculating about on Friday.
Research from RBC Capital Markets says such a merger would produce a “tech/media juggernaut like no other” — the combination of the biggest tech company in the world and a near-century-old cultural titan.
“The resultant company would be massive, with enough cash and balance sheet capacity to change the nature of the hardware, service, and content industries,” the analysts wrote in a note to investors.
“If there’s a deal out there that would strike fear in the hearts of Silicon Valley and Hollywood, this could be it.”
But where is this speculation coming from? And how likely is it, really?
Apple has hundreds of billions of dollars lying around
First up, Apple has the cash for a deal — in theory. It has around $US230 billion stashed overseas, and is waiting to repatriate it back to the US. but it’s not as simple as transferring it from one account to another — it could incur a huge tax bill when it does, so it wants to ensure it gets the best deal it can.
CEO Tim Cook has said he’s “optimistic” about American tax reform in 2017, meaning repatriation without paying a huge corporate tax penalty — after years of waiting — is finally a real possibility.
Disney wouldn’t come cheap
With that in mind, Disney isn’t exactly pocket change. RBC’s analysts estimate Apple would pay a 40% premium on Disney’s share price — costing it a cool $US237 billion. With around $US200 billion of repatriated post-tax cash to spend, the shortfall would be made up by debt.
It’s an order of magnitude larger than previous acquisitions carried out by Apple — the largest of which previously was music company Beats, for $US2.2 billion.
But people are definitely alive to the possibility. RBC’s analysts says investors are “frequently” asking them “whether Disney is an acquisition target for Apple.”
We’re getting a little ahead of ourselves here. Why might Apple try to buy Disney in the first place? Well, there a few key reasons.
- It would diversify Apple away from the iPhone. Right now, Apple is dependent on the iPhone for more than 60% of its total revenues. It’s a phenomenally successful product, but that level of dependence also makes Apple vulnerable to changes in the market.
- It would boost Apple’s services business. In a slowing global smartphone market, Apple is looking for avenues for growth — and services (subscriptions like Apple Music) ia a key one for the company. Disney, with its vast library of content and subscription assets like ESPN, would turbo-charge this division.
- It would create a streaming giant capable of taking on Netflix and Amazon. With Apple’s tech expertise and Disney’s content library, it could produce a product in the streaming market capable of going toe-to-toe with the dominant players like Netflix. “Neither entity has chosen to enter the digital streaming market whole-hog arguably because competition and/or returns are a challenge,” RBC writes. “But together, DIS and AAPL would instantly have access to global distribution (via AAPL’s installed base and the global iTunes store) and a massive library of content + studio capacity (via DIS) to make future movies and shows.”
- The deal could benefit Apple shareholders financially. RBC analysts estimate that a Disney acquisition would be 18% accretive to EPS for Apple shareholders.
So … is this actually going to happen?
RBC’s research seems to be driven by speculation and questions from investors, rather than internal gossip or hard evidence of any theoretical talks between the two firms.
Its analysts admit that they consider it a ‘greater than 0%’ probability event,” though ultimately, the “odds are low.”
There has been speculation and recommendations about such a deal for years. Veteran US cable executive John Malone said in 2016 that Apple could be interested in Disney if ESPN was spun off. Plus the companies already have some links, with Disney CEO Bob Iger sitting on Apple’s board.
If it ever happened, a merger would be a monumental corporate event, giving the combined entity “unrivalled scale in content creation and distribution with the potential to create an instantly competitive global SVOD/streaming service. And, a massive balance sheet and technical capability to pursue future sports rights and protect live viewership moats, and integration of AAPL technologies into DIS Parks and Consumer Products,” RBC says.
Lastly, here’s RBC’s analysts on the “best justification” for a deal:
“The best justification for such a mega deal, in our view, is the ability to do things together that neither company, nor any other company, could do. The sheer scale of a combined company offers some unique opportunities, and we’ve tried to identify some of the more compelling ones below.”
“More importantly, Apple and Disney are each not just industry leaders in their own right but titans of industry on a global scale with truly unique products and services. Few people on earth are not already familiar with both companies’ products, yet they don’t compete in any meaningful sphere at the moment. The question therefore becomes what can they do together that they can’t do apart? The answer is they can do just about anything given the technology and financial resources.”
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