Disney a possible takeover candidate:
dailynews.yahoo.com
Wednesday September 26 6:49 PM ET
Thinking the Unthinkable: Disney Takeover
By Jeffrey Goldfarb and Bob Tourtellotte
NEW YORK/LOS ANGELES (Reuters) - By most measures, somebody should be courting Mickey Mouse.
Shares of Disney(NYSE:DIS - news) are down some 40 percent on the year, to $17.53, their lowest price since January 1995, lagging the S&P 500 index by about 35 percent during that span. The company's largest shareholders, also among Chairman and Chief Executive Michael Eisner's strongest supporters, were forced to sell a majority of their stake in a recent margin call.
More than half the company's revenue is dependent on travel and tourism, retail and advertising -- three aching sectors expected to ail even more following the Sept. 11 hijacked plane attacks on the United States.
Disney's board is not staggered -- members are all elected the same year, making it easier for an outsider to gain control -- and it has no poison pills to ward off unsolicited offers.
Given those weakened conditions, buyers normally would be salivating and mobilizing for a brand as valuable as Disney's. However, there's an unanswerable question -- Mickey's riddle, as it were -- for those who considered the prospect.
``The thought of somebody going after Disney on a hostile basis,'' said one investment banker who asked not to be named, ''I just can't imagine who that might be.''
``Sure, theoretically, anything can be bought, if you look at it in a vacuum,'' said Paul Kim, senior media analyst for Kaufman Bros. ``But who would be the acquirer? Especially right now, who would it be?''
``The current operating environment uncertainty makes it hard to believe anybody would make a deal that big,'' said Chris Dixon, an analyst at UBS Warburg. ``Who is the buyer?''
Who indeed?
USUAL SUSPECTS
The prime suspects are media conglomerates Viacom Inc.(NYSE:VIA - news), AOL Time Warner Inc.(NYSE:AOL - news) and News Corp. Ltd. (NCP.AX). But the pervasive reasoning is that all would face insurmountable regulatory hurdles because of media ownership rules and other antitrust concerns.
``It's not to say you couldn't get a merger of this sort through, but it would be a long process with months, or even years, of grueling negotiations, and probably a certain amount of restructuring,'' said Bert Foer, president of the independent nonprofit researcher American Antitrust Institute.
``But these big deals, by and large, do get through,'' he added, referring specifically to America Online's acquisition of Time Warner and Disney's purchase of Capital Cities/ABC.
Dealmakers also consider it especially difficult to access financing now, particularly in the junk bond market, which is often tapped for leveraged buyouts.
A foreign company, like Vivendi Universal(EAUG.PA)(NYSE:V - news), could potentially pull it off, experts said, but there would be added regulatory burdens over owning a broadcast station.
``If you want to think creatively, maybe Microsoft, but Microsoft probably has no interest in a lower-return business like media,'' said Kim from Kaufman Bros.
Outsiders in general, if history is any judge, have a hard time running entertainment properties.
``Chances of success for somebody not in the industry are lower,'' said Gerard Klauer Mattison analyst Jeff Logsdon.
In addition, Disney is steeped in the family-oriented traditions of its founder, Walt Disney. As a result, any strategic buyer likely would find it hard to assimilate its own executives and values into the Disney corporate culture.
Financial buyers, of the Carl Icahn ilk, were floated by some experts, but were considered unlikely possibilities. The somber pall that has descended on the financial community following the attacks was cited as one reason.
``For a while you're not going to see people launching hostile takeovers,'' one investment banker said. ``The first person to do that now would be vilified in the financial community for taking advantage of the circumstances this country is in.''
THE BOTTOM LINE
But times were tough and the outlook was tepid for Disney even before the recent attacks. Earlier this year, Disney shuttered its ill-fated Internet play, Go.com. Its film ``Pearl Harbor'' was generally seen as a major critical flop. Theme park attendance has sagged.
With a market capitalization around $36.5 billion and $16 billion of debt, buying Disney still would be costly. However, gaining some control of Disney's board is perhaps more feasible than a few years ago, with a potential drop in confidence in Eisner, and others, given the company's performance.
Dave Davis, senior vice president of entertainment for investment bankers Houlihan Lokey Howard & Zukin, said Disney shares are undervalued at current prices and for the first time in many years, he ventured, a company could grab Disney.
``If you do a valuation analysis of the company -- even if they had a year or more worth of bad results -- the intrinsic value of the assets well exceeds where the stock is at,'' said Davis, who owns Disney shares.
It wouldn't be the first time that Disney was the target of a hostile bid. In 1984, corporate raiders Saul Steinberg and Irwin Jacobs both made runs at the company, at a time when it had virtually no debt and substantial cash. The Disney family found an ally in the Bass brothers, together controlling about 50 percent of the company and bringing in Eisner and Frank Wells, who were credited with the company's revival.
Industry watchers conceded that Eisner's once bright star on Wall Street has diminished in recent years as Disney's stock price has lagged peers like AOL Time Warner. But in recent months, analysts seemed to agree that Disney has done a solid job of cutting costs in the face of the weak economy.
Analysts also noted that Disney's media businesses suffer from an industry-wide advertising slump that has hurt all major media companies, and the concern over weaker tourism that is now casting a shadow over Disney's theme park business is beyond the company's control.
``The best Disney can do is concentrate on their business and work through it,'' said Dixon.
In recent conference calls with analysts and reporters, Eisner has said that each time a weak economy hurt theme park attendance, the parks rebounded strongly with the economy.
``We are focusing on strengthening the company and on managing our various businesses to improve shareholder value,'' Disney spokesman John Dreyer said.
One of Disney's bright spots has been its TV hit ``Who Wants to Be a Millionaire (news - web sites)?'' So, then, what's Wall Street's final answer to the question of who could or would buy Disney?
``No one is egregiously valued above Disney in the sector on a global basis,'' analyst Kim said. ``So at this point, the answer would be no one.'' |
