Rumours from Wall Street: Will Apple Buy Disney?

Chris Wray

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

Business Insider recently posted interesting news on talk from Wall Street on a potentially huge deal. This news would be about Apple (NASDAQ:AAPL) and the possibility of them buying Disney (NYSE:DIS). Just how realistic is this? There's little doubt that Apple can afford to buy Disney outright, but will they and for what reasons?

Apple is currently sitting on a cash pile of over $215 billion. Of course there are a number of things the company could do with this. Will they reinvest this in future products? They continually release new products so an increase in R&D could be expected. This was increased from $8bn in the 2015 fiscal year to a little over $10bn in 2016. This only accounted for 5% of net sales, so there's a great potential for increased R&D spending as Apple could consider diversifying or increasing the improvements in the latest iterations of the iPhone, Mac or other i-Products.

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This won’t really put any sort of dent in that cash pile, it wouldn’t even negate the sheer amount of cash the company brings in each year. This is where Disney comes in. Content and how to use that content is a huge thing. Apple would hold a huge advantage should they gain the library of Disney.

Apple with Disney: Content is King

It's no secret that exclusive content is a giant advantage in any competition with another media company. The possibility of Apple holding the exclusive rights to the streaming of Disney films and TV shows. The licensing of any Disney mobile games being limited to iOS only. This alone would increase the perceived value of the iPhone, iPad and Apple TV. Of course, with the majority of the mobile and home computer market consisting of Android and PC respectively, it would severely undermine Disney's bottom line. It would be counter-intuitive and likely never happen. However, timed exclusivity could be an option.

Looking at video games gives a perfect example of how exclusive content can sell devices. The Nintendo (TYO:7974) Switch has sold over 1.5 million almost exclusively on the back of a single game and brand recognition. Other consoles like Sony's (TYO:6758) PlayStation 4, have a wide number of exclusives (Horizon Zero Dawn, The Last of Us, Uncharted) that act as system sellers. Of course games aren't system sellers for phones in the way they are for home consoles, but they are certainly making an impact due to the growing size of the mobile gaming market.

Beyond games, there would be a great potential for Apple to use the success of Disney's films. According to Box Office Mojo Disney found themselves with the top five grossing films of 2016. Imagine the possibilities of Apple TV, through iTunes, holding the rights to stream these films at the same time as the cinema release. While this is unlikely, the options directly following the cinematic release are there. It could be something as simple as earlier, if not exclusive digital access to Apple devices.

Of course there are pre-existing deals in place. Marvel and Netflix (NASDAQ:NFLX) have worked together in the creation of a large number of series'. Netmarble, who are planning an IPO, have a deal in place to release games featuring Marvel, Star Wars and other Disney characters on both iOS and Android systems. This doesn't include the countless other companies that have licensed Disney properties for games and other media.

That Apple would want complete exclusivity, should they buy Disney, is far from likely. There is certainly a lot of money to be earned from opening content to a wider number of people. Cannibalizing the Disney brand to increase Apple's valuations doesn't seem like something the Cupertino giant would do.

Would the Deal be worth it?

Samantha Greenberg, the founder of Margate Capital, a hedge fund, supported this in an investor letter obtained by Business Insider. "Apple has talked about the benefit Apple sees when it owns exclusive content, and owning Disney would reduce Apple’s exposure to product cycles, expanding AAPL's valuation" Greenberg stated. She then followed up with "It would also be an accretive use of Apple's cash and even more so if Apple's $200Bn of offshore cash can be repatriated favourably".

There's little doubt that the acquisition of Disney would add an incredible amount of value to Apple. What should be looked at is the value to the products and services that Apple offer. The possibility to remove any overlap and share resources will only increase the value and reduce costs. Maximizing synergy would be key here.

Of course, what should also be considered is the fact that Disney is currently finding incredible success in movies and the merchandise and collectibles that come along with them. The chances of selling on or spinning off less successful areas like ESPN and the ABC network, suffering from falling subscribers and viewer numbers, would only make Disney look like an even more appealing target for acquisition.

As it stands right now, Disney have a market capitalisation of $177bn. Rumours of Disney offloading ESPN and ABC are far from new, particularly as a result of the aforementioned audience loss. If they were to be sold, Disney could very easily set Apple back something in the region of $140bn. Even without any potential trimming Apple could purchase Disney outright at a reasonable premium.

It's something that's been rumoured for quite a while. As Apple's cash pile grows ever larger, finding a use for it that benefits the company long term will certainly appeal. Over previous years the company had considered acquiring Netflix and Time Warner. Tim Cook himself has previously noted that there is no size they wouldn't do, based on the size. It would be based on the strategic value of it. Would Disney offer that strategic value? I could certainly see that being the case.

Source of original story: Business Insider.

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