https://www.yahoo.com/entertainment/watch-apple-another-disney-buyer-134157316.html
Watch Out, Apple – Another Disney Buyer Could Be Emerging | PRO Insight
Peter Csathy
Tue, August 8, 2023 at 8:41 AM CDT
From Hollywood to Wall Street, all eyes in the media and entertainment industry will be trained on Disney Wednesday as it announces its latest quarterly earnings. And question No. 1 from analysts to CEO should be his thinking about M&A.
Those questions should take on more urgency now that Iger has
retained former top lieutenants Kevin Mayer and partner Tom Staggs — currently running Candle Media as co-CEOs — in a “consulting capacity” to help decide ESPN’s fate. This intriguing development followed Iger’s recent uncharacteristically frank and gloomy comments that
pointed to the notion of Disney shedding some of the assets it built up under his first run as CEO.
Apple is still the most obvious potential buyer for a slimmed-down Disney, as I
recently noted. But Mayer and Staggs’ reentry to the Magic Kingdom could make Disney the happiest place on Earth again for them, as well as shareholders.
Disney’s stock is down over 50% from its highs a couple years back and has continued mostly on a downward trajectory after Iger’s return gave it an early buzz. Particularly troubling are
plunging revenue and profits for ESPN and Disney’s other cable networks (down 6% to $14 billion and 29% to $3 billion, respectively, for the first six months of fiscal year 2023, which cover October through March). And Mickey sees troubling transformational headwinds everywhere amidst increasingly tech-driven media’s new world order.
At first blush, it seems odd for Mayer and Staggs to be retained in a “consulting” capacity, don’t you think? It’s not as if they don’t have other things to do. Both run an expanding media holding company which now includes Reese Witherspoon’s Hello Sunshine, bought by Candle for
a reported $900 million, and Moonbug Entertainment, acquired
for a cool $3 billion.
But look closer and follow the money. Candle Media is backed by Blackstone, the massive private equity fund that manages $1 trillion in its M&A coffers. You heard me right, that’s “trillion” with a capital “T” — a lot of cheese if you’re trying to catch a mouse.
You can see the picture emerging here. Mayer ran Disney’s strategic planning group for years and engineered all of its massive game-changing acquisitions of the past two decades, an M&A spree that was the envy of the entertainment world. Most notably,
these includedPixar ($7.4 billion), Marvel Entertainment ($4 billion) and Lucasfilm ($4.05 billion) — all incredible bargains in hindsight. How’s that for a franchise trifecta! Yes, Mayer also led the $71 billion acquisition of Fox’s entertainment assets where many pundits
believe Disney overpaid, but don’t hold that against him. The jury is still out on that one. Even if that deal doesn’t ultimately pan out, a .750 slugging percentage is pretty damn good.
The point is that Mayer is a deal guy through and through, and Candle Media’s raison d’etre is M&A. Besides perhaps Iger, no one knows Disney’s assets, or what to do with them, better than he does. And then there’s his partner Staggs, who also spent years at Disney, ultimately serving as its COO.
Mayer, Staggs and their Blackstone benefactors theoretically could mastermind a takeover of all of Disney by leveraging massive debt, as well as cash. But that’s not likely, particularly in this era of continuously rising interest rates. Much more likely would be for Mayer and Staggs to buy what they deem to be Disney’s tastiest morsels. Since they are consulting for Iger about ESPN’s fate, that’s an obvious place to start. One person’s “consulting” is another person’s “due diligence” in advance of a potential acquisition.
ESPN and related properties likely would command at least one-third of Disney’s current depressed market cap of about $150 billion (a buyout premium would take the number significantly higher, of course). Disney’s
“linear networks” generated about one-third of Disney’s overall revenue last quarter. Media M&A multiples on financial performance can vary widely, with upward trending relevant financials rewarded on the higher end as compared to ESPN’s current downward trend.
After an acquisition of one or more parts, Mayer and Staggs could return to the mothership to work the magic they might have hoped to as Iger’s heirs before his surprising anointment of parks chief Bob Chapek. The private equity playbook — streamlining operations, accelerating growth and getting liquid within five to seven years — could work here. Disney’s distressed stock price certainly makes this possibility more probable today.
Apple is still the leading contender to buy Disney assets for
all the reasons I laid out in my earlier column before Mayer and Staggs reemerged. But private equity in the form of Blackstone runs a close second. Apart from those two mega-players, I see no other obvious buyers. Traditional media (studios, broadcasters) can’t afford it. Nor do I see any of the other tech behemoths like Microsoft, Alphabet,
Amazon or Meta taking a swing. While some might see value in live sports, the brand and cultural fit just likely aren’t there for Iger. Those suitors simply aren’t worthy in his eyes.
Iger, of course, denies that ESPN is for sale, even as he searches for “strategic partners” to fund its transition to streaming. But methinks he protests too much. Why return to the tumult of Disney after already cementing his legacy of one of the great all-time Hollywood moguls? It likely means one thing, and one thing only: He has transformational M&A in mind.
Iger’s obvious win — culturally, financially and reputationally — would be either a Disneyfied Apple (Iger served on Apple’s board for years and was a close confidant of Apple co-founder Steve Jobs) or Disneyfied private equity (Mayer and Staggs now wear their Mickey Mouse ears once again).
So Disney investors, consider this column your blueprint for Wednesday’s earnings call. It’s the perfect time to probe Iger’s appetite for selling off wings of the Mouse House — and possibly inviting in new – but extremely familiar – roommates in the executive suite.
