There were rumours that a potentially big deal can happen with Apple buying Disney leading to Apple shares going down and Disney shares moving up at the Wall Street. With Apple sitting on $215 billion cash, the question is not if it can buy, but will it buy and why?
Amit Daryanani, a RBC research analyst said that few of the investment professionals do consider it an exceptionally off chance. He admitted that though the chances are low, they still exist. We can’t consider it a zero probability event. He said, “AAPL’s focus on services and its inability (so far) to replicate its music/iTunes strategy into content/media make acquiring DIS logical in our view. This is particularly true if AAPL can access $200B+ in offshore cash via repatriation holiday.”
But not everyone is a party to such a thought process. The equity chief investment officer, Erin Gibbs working at S&P Global feels that buying a large company by another large one is not a good business sense.
The exclusive content is a great advantage – something that Apple will gain if it buys Disney. It will then have exclusive rights to the streaming of Disney TV shows and films. Disney mobile games can be licenced only on iOS devices. This will definitely increase the perceived value of the Apple devices.
Gibbs acknowledged this by saying, “Being categorised as a media entertainment company could possibly increase Apple’s multiple, but most of the criticism of Apple revolves around its slowing growth, and Disney is growing at a slower place. One would more likely expect an acquisition to increase the growth rate rather than lower it.”
The other area where the analysts feel that it is not a great idea is that the main revenue stream for both the companies is totally different. For Disney, it’s the theme parks while Apple makes revenue from the technological superior products.
Till date, the biggest acquisition ever made by Apple was of Beats Music and Beats Electronics. Apple paid $3 billion for it and thus to pay $237 billion for Disney seems to be dicey. Apple will require doing a lot of homework before deciding if it really wants to take this outsized risk.
The investors are also not very keen on seeing these two combine as both Apple and Disney have a loyal fan following. Some investors are bullish on Disney given that it is showing a robust performance in its theme parks and also its upcoming films are expected to perform well. Apple, on the other hand, has the biggest investor of all times – Warren Buffet on its side.