Firms have expressed interest in taking over Disney because they
believe they could achieve better financial results once they have
combined with Disney than they can alone. In particular, it is
currently a popular strategy amongst media firms to combine content
owners with content distributors. The merger of "...News Corp., which
owns the Fox TV franchise and film studios, with Hughes electronics'
DirecTV satellite TV service," ("The Early Betting Is on Comcast" By
Amy Tsao, BusinessWeek (February 11, 2004))
http://www.businessweek.com/bwdaily/dnflash/feb2004/nf20040211_2880_db035.htm
is the most recent example, and it has caused many companies to
consider following suit. It is increasingly viewed by many that it is
desirable for distributors to own at least some of the programming
they carry.
Disney itself became a prospective acquisition candidate as opposed to
an acquirer because of its mediocre financial performance during the
past few years. The company's inability to extend its distribution
agreement with Pixar also has played a catalyzing role. Furthermore,
the company's corporate governance has long been viewed as being poor,
including very few independent directors and a single person as both
the Chairman and CEO. The many recent corporate scandals have brought
renewed attention to the composition of Disney's board and its other
corporate governance issues. The departure of many senior level
executives and the absence of a succession plan for CEO Michael Eisner
have created additional controversy. Finally, Roy Disney and Stanley
Gold, who are former board members, have been publicly critical of Mr.
Eisner.
In addition, one cannot overlook the attractive assets that Disney
has. Disney's holdings include the ABC television network, ESPN, a
movie studio, and its theme parks. Although "ABC has seen ratings
fall by 10% this year as it has slid to fourth place, and it trails
badly in the race for the 18-34 demographic that advertisers most
want," ("An Eisner A Strategy?" By Ronald Grover, BusinessWeek (April
22, 2004)) http://www.businessweek.com/bwdaily/dnflash/apr2004/nf20040422_6834_db035.htm,
ESPN and the company's other cable channels have performed well.
Although recent film releases by the company have been poorly
received, its library of animated films is highly attractive to
content distributors, whose largest expense is content. Its theme
parks are valued at about $14 billion, which could be operated or sold
by an acquirer. With these valuable assets, and the belief that ABC's
performance and the movie studio's performance could be improved by
new management, companies view Disney as an attractive acquisition
candidate.
To avoid the threat of takeover, the company has taken, and must
continue to take, many steps. Fundamentally, the company must take
steps to boost its stock price and shareholder returns. Many believe
that removing Michael Eisner in favor of a new CEO will be an
important step. The company has begun to address its corporate
governance issues by separating its Chairman from its CEO. It also
reported unexpectedly good results on May 12. Tourists from abroad
are returning to the company's theme parks despite global events, and
ESPN performed spectacularly.
However, many believe that until Mr. Eisner is replaced, the company's
stock will stagnate. And, as long as other companies believe they can
extract more value from Disney's assets than Disney's existing
management team can, and the stock is perceived to be undervalued,
Disney will remain an acquisition target.
Sincerely,
Wonko
Additional References:
"Eisner's Lucky Numbers" By Ronald Grover, BusinessWeek (May 14, 2004)
http://www.businessweek.com/bwdaily/dnflash/may2004/nf20040514_0116_db011.htm
"2004's Other Election Battle: At Disney" By Ronald Grover,
BusinessWeek (February 9, 2004)
http://www.businessweek.com/bwdaily/dnflash/feb2004/nf2004029_6475.htm
"Comcast-Disney: Let the Future Begin" By Steve Rosenbush,
BusinessWeek (February 11, 2004)
http://www.businessweek.com/technology/content/feb2004/tc20040211_5974_tc120.htm |
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