Disney-Pixar Merger Isn't A Goofy Idea
Credit Suisse First Boston
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WE ARE BIG BELIEVERS that Disney buying Pixar would be a smart strategic move that could have very positive intermediate-term (and long-term, as well) financial returns for Disney.
We believe that Pixar agreeing to be acquired by Disney could be a strong catalyst for both stocks and both companies. It could fix the filmed-animation issue for Disney in an instant and make them the market leader in this all-important genre, and that alone could be a major catalyst for Disney's stock price.
Dilution would be relatively benign and more than tolerable for investors in the short term. There seem to be few media company mergers that ultimately work well, but the unique structure of this partnership would likely drive ultimate success.
Disney is rated Outperform and still at the top of our list; Pixar was recently downgraded to Neutral after our October upgrade and a 35% surge in the stock. The Wall Street Journal ran a page-one article Thursday stating "Disney is in serious talks to acquire Pixar."
We believe that the top priorities for new Disney Chief Executive Bob Iger are: (1) ensuring success of the animation franchise at Disney, as that has a strong "ripple" effect across many key business lines, (2) correctly positioning Disney on the technology curve in terms of content distribution, and (3) pushing international growth opportunities for Disney.
We believe that Disney acquiring Pixar could be a very good deal for both companies if it were to occur. They are still negotiating for a renewed distribution agreement to extend beyond the current deal (about to expire).
We don't think it is a stretch to believe that Iger and Pixar (and Apple Computer) Chief Executive Steve Jobs could go one step further and merge Pixar into Disney. The deal could be alluring to both parties for the following reasons:
1. Pixar would de facto become the film animation division for Disney and that would instantly solve the top priority on Iger's list. Pixar brings very strong and talented management to run this animation franchise and with both companies working so closely for so long, it could be a relatively seamless transition.
2. Disney could name Jobs to the Disney board of directors, adding a strong technology visionary to the Disney team.
3. A merger/acquisition gives the company a larger canvas to create and distribute content across the Disney cable networks, consumer products, and theme parks.
4. A theoretical purchase price of $60 would work for Disney. In other words, this deal still makes major sense to us. |
