The scenario is a dream of many Wall Street financiers for several years, but today it seems more logical than ever and if Apple (AAPL, US $ 108.84) and Disney (NY, DIS, $ 92.45. US) united their destinies?
A marriage between two of the most popular consumer brands not only constitute a happy ending worthy of the Disney tales, but it would also seem very favorable strategic and financial plans.
The arguments in favor of such a transaction are multiple. The principal, in my opinion, is the need for Apple to find a new growth momentum that is not based on yet another technological miracle. The company co-founded by the late Steve Jobs made several home runs during the last decade, but its ability to repeat similar exploits to those of the iPhone now seems more limited.
For the first time since 2001, Apple has seen its annual revenue decline during the year that ended in September. Revenue from the sale of its flagship product, the iPhone, fell 13% in the fourth quarter. Although analysts predict that sales of its phones are expected to resume growth in the next year, the increase in long-term revenue will be less than 5%, anticipates Brian Colello of Morningstar.
In a context where the smart phone market is mature and when Apple will struggle to impose as brilliantly than ever with its new products, the first market capitalization of the world must consider a major acquisition that will allow it to grow revenue for several years.
Many missing links
Disney would make an ideal bride for Apple. The two companies are complementary and share a similar culture. They are already closely linked, since Robert Iger, Disney president, sits on Apple’s board for five years.
The relationship between Apple and Disney dates back far before this appointment. Steve Jobs sold Pixar to Disney for 7.4 billion US dollars in 2006. The co-founder of Apple is suddenly became the largest shareholder of Disney and accessed the latter Board. MM. Jobs and Iger had maintained a close relationship and contributed to the mutual success of their products. Disney, for example, was one of the first large media groups to partner with Apple to offer movies, TV shows and music on iTunes.
Disney sell Apple also solve the succession problem at the entertainment giant’s head. Mr. Iger is retiring in June 2018. However, since the abrupt departure of her dolphin Tom Staggs in April, the Disney board seeks “the” candidate who will fit the big shoes of its star CEO.
If Apple can find Disney a new growth locomotive, the reverse is also true. The media conglomerate and amusement parks faces headwinds that blur prospects. The transformation of the advertising market indeed mine revenues of its radio stations and cable TV. Its magnificent sports channel ESPN, suffers from the migration of subscribers to TV packages lightened when it is not a complete unsubscribe to the cable. The Nielsen research firm also said on November 4 that ESPN had lost 621,000 subscribers in a month, a figure called into doubt by the management of Disney.
Still, Disney needs to accelerate its offensive on new platforms. She has just taken a 33% stake in BAMtech order to have access to technology that will allow it to stream content from ABC and ESPN directly to consumers. But in alliance with Apple, Disney would make a giant step for transition from traditional cable companies to broadcast online platforms.
The boss of the house of Mickey clearly stated during his participation in an event at Boston College Chief Executives Club last month that the content was no longer king, distribution channels are also crucial. “Disney, ABC, ESPN, Pixar, Marvel, Star Wars and Lucasfilm … it’s nice to have all that, but in today’s world, it’s almost enough unless you have direct access to your customers, “said Iger. Imagine also how Apple would be happy to count on the iconic brands of Disney to realize its ambitions in the TV sector!
The doubts about Disney’s growth potential also make her more attractive valuation for a potential buyer. The stock is trading at 16.7 times earnings achieved over the past 12 months, a multiple lower than that granted to the market as a whole (19.4) and its annual average of 19.3 the past four years. According to specialized media analyst Anthony DiClemente, Nomura, evaluation given to Disney frieze historic lows.
Apple is also one of the few companies that have the balance sheet to absorb Disney. After the most recent quarter, liquidity amounted to over US $ 237 billion. By offering a premium of 20% over the current price, the company headed by Tim Cook should extend approximately US $ 200 billion, if one includes the debt of US $ 20 billion of Disney.
Lots of good reasons … except to speculate
Even if there are many good reasons to combine the world of Apple and Disney, the film is far from being written in advance. Apple has ever made acquisitions of this size. His most impressive to date is that of the manufacturer of headphones Beat Electronics for US $ 3 billion in 2014.
Such a transaction would encounter as surely many regulatory barriers. The odds that Apple buys Disney probably never been higher, but it is wise to avoid speculation, given the factors that can derail this scenario.
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