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The logos of The Walt Disney Company and Marvel Enterainment - Source: Reuters
Walt Disney Co agreed to buy Marvel Entertainment Inc for $US4
billion in the year's biggest media deal, banking on Marvel's
pantheon of superheroes to broaden its line-up of movie franchises
that appeal to boys.
Disney adds Spider Man, Iron Man and Thor to its roster of classic
characters like Mickey Mouse and Snow White, and will feature the
super-heroes in movies before rolling out associated theme park
rides, TV shows and merchandise.
But the deal comes at a tough time in the entertainment business,
with advertisers avoiding spending on new campaigns and consumers
cutting back on everything from DVDs to travel.
The deal is also expensive.
It values Marvel at 37 times its estimated 2009 earnings, and offers shareholders a 29% premium to Friday's closing price.
Standard & Poor's reacted by placing Disney's credit rating
on its negative watch-list, saying it may need to issue new debt
even as earnings stagnate or fall in the recession.
But the risk of overpaying did not deter Disney from seeking out a
deal to address an area of concern among investors: How can it
better reach more young males.
"This helps give Disney more important exposure to the young male
demographic that they have sort of lost some ground with in recent
years," said David Joyce at Miller Tabak & Co.
Disney has long been a blockbuster brand with girls thanks to
characters such as Hannah Montana, Cinderella and Snow White, but
has struggled to achieve the same kind of success with boys.
Movies including Iron Man 2, the sequel to the smash hit about a
billionaire playboy with a high-tech suit of armour due to hit
theatres in 2010, or 2011's Spider-Man 4 and Avengers, should help
resolve that issue.
Disney will also be able to use its marketing and entertainment
clout - stretching from ABC to cable television to theme parks - to
promote and build characters such as Thor in ways Marvel never
could.
The deal to buy the 70-year-old studio - which began life as an arm
of a pulp fiction publisher in 1930 before bankruptcy, then rose to
prominence in the past few years following Spider-Man - is Disney's
largest since the $US7.6 billion purchase of Pixar in 2006, and it
made waves.
Shares in DreamWorks Animation SKG Inc spiked 6.5% on speculation
it too may become a takeover target.
But analysts raised questions about companies like Viacom Inc,
Discovery Communications Inc, and Hasbro Inc that have existing
business partnerships with Marvel.
Hasbro stands to lose its chance to acquire valuable content for
a new TV venture with Discovery, given that Disney is likely to
hoard Marvel content for itself.
Under-promising?
Disney agreed to pay a total of $US30 per share in cash plus about
0.745 Disney shares for each Marvel share owned.
The deal was approved by the boards of both companies.
The deal is expected to gain approval from antitrust regulators,
said Evan Stewart, an antitrust expert with law firm Zuckerman
Spaeder LLP.
The shares of Marvel, which was founded in 1939 and rolled out its
first blockbuster character, Captain America, in 1941, shot up to a
high of $US49.29 before falling a bit to close at $US48.37 on the
New York Stock Exchange.
Disney approached Marvel a few months ago to get to know them,
Disney Chief Financial Officer Tom Staggs said.
The overture began with a meeting between Disney Chief Executive
Robert Iger and Marvel CEO Ike Perlmutter and evolved into merger
discussions over a series of meetings.
"We at Disney had admired them because of their position and asset
base," Staggs said. "With conversations over time we came to
believe in the value of a combination."
Shares of Disney, which will acquire ownership of more than 5,000
Marvel characters, fell three percent to $US26.04.
The deal is expected to close by year-end, but will not add to
Disney earnings until fiscal 2012.
Though Disney stands to get a slice of some of Marvel's hottest,
upcoming slate of movies - including Thor and Iron Man 2, it would
not gain in the short term from lucrative theatrical distribution
fees.
Paramount Pictures said in a statement its five-picture
distribution deal with Marvel remains in force.
And Sony Pictures, the division of Sony Co behind the Spider-Man
movies, can continue to make movies in the franchise, under an
existing agreement.
The acquisition came as a surprise, even though Iger had mentioned
recently the company would consider acquisitions that bolstered
Disney brands across international markets and on new technology
platforms.
While it could kick-start more mid- to small-sized deals in the
media sector - where stocks have outperformed the broader Standard
& Poor's 500 this year - few analysts see another bidder making
a play for Marvel.
A major reason is the presence of Marvel's Perlmutter, who owns 37%
of the company and will oversee it within the Disney empire.
Perlmutter will trade his stake in Marvel for a one percent
stake in Disney, but will not receive a seat on its board of
directors - as did Pixar CEO Steve Jobs.
Disney was advised on the deal by Goldman Sachs , Allen &
Company and Guggenheim Partners, while Marvel worked with Bank of
America Merrill Lynch.
Disney executives drew a number of parallels between the Pixar and
Marvel deals, and suggested it would keep the Marvel brand
intact.
"The goal here is not to re-brand Marvel," Iger said on a
conference call.
Caris & Co analyst David Miller said Disney was sandbagging a
little by estimating the deal would not add to its earnings for
another two years.
"They said the same thing with the Pixar deal," said Miller, who
has above average ratings on both Disney and Marvel.
"They will make it accretive a lot sooner. They are
under-promising, as they always do."
And what do the fanboys - the ones who scrutinize every comic-book
adaptation for faithfulness to the original - say?.
Stan Lee - the co-creator of Spider-Man and Chairman Emeritus of
Marvel - says don't worry.
"To me, becoming 'Disneyfied' is not a bad thing. I mean look at
(Disney) movies like 'Pirates of the Caribbean,'" Lee, who parted
ways with Marvel years ago said.
"Disney knows how to do movies."
