by Louise Harris, Investment U Research Team
The entertainment world is changing, and companies in the business know that all too well… hence the reason why The Walt Disney Company (NYSE: DIS) just announced its acquisition of Marvel Entertainment Inc. (NYSE: MVL)
Comic book fans might hate the move, but in order to survive in today's climate, Disney has to look outside the box office to the whole entertainment package.
Gone are the days when movies made all their money at the box office. And with DVD sales shrinking, Hollywood has no choice but to bring in more revenue by delving into toys, videogames, clothing, rides, digital copies of movies and Internet streaming.
Naturally, Disney hopes to milk the merger for all its worth, exploiting Marvel's 5,000 characters across the entire spectrum over the next several years, especially considering Spider-Man, Iron Man and the Incredible Hulk's success in past years.
It also hopes the merger will expand its audience base to include boys in their preteens into adulthood… a difficult audience for Disney to capture in the past.
Marvel Makes One Pricey Acquisition
Of course all of that potential comes at a price… a hefty one according to competitors and the financial press, who have criticized Disney for paying $4 billion for Marvel. Meanwhile, Disney holds firm to its belief that this new move will reap great rewards.
Shareholders of the comic book empire will receive $30 a share and three-quarters a share of Disney stock. The deal is valued at $50 per Marvel share, a 29 percent premium.
Personally, we're not so sure Disney can pull off the gains to make the purchase worthwhile… at least not for shareholders.
For one thing, long-term agreements with Sony Corp. ADR (NYSE: SNE) and News Corp. (Nasdaq: NWS) mean it can't produce any Spider-Man – one of the highest grossing movie franchises, bringing in over $1 billion domestically – and X-Men films.
And Disney has accepted the full risk of building up a reputation for the lesser-known characters on its own.
Marvel was eager for the acquisition because of the risks involved in promoting unknown characters.
