Mickey Mouse, meet the X-Men.
The Walt Disney Co. (DIS) said Monday it agreed to buy Marvel
Entertainment Inc. (MVL), the creator of Spider-Man, the X-Men and
thousands of other characters, for about $4 billion in the
company's largest acquisition since it bought Pixar Animation
Studios in 2006.
The deal opens a new chapter in Disney's long history, adding a
slew of new, globally recognized movie characters - such as Iron
Man, Spider-Man, X-Men, Captain America, Fantastic Four and Thor -
to its deep bench of classic and contemporary icons. It also adds
countless lesser-known storylines and characters that Disney hopes
to introduce to the world.
This marks the first big media deal since companies began
hoarding cash last fall during the global financial crisis. Aside
from the economic downturn, Disney's move amounts to a rare display
of confidence in an industry that's muddling though a daunting
transition to digital media amid growing doubts about its
traditional business models.
Disney Chief Executive Robert Iger said during a conference call
Monday that Marvel was an attractive target for Disney despite the
challenges facing the media industry, such as the decline of DVD
sales, that has hurt profitability at major film studios.
"They're not bulletproof," said Iger. "They are not immune from
the changes that we're seeing, but they have established a footing
that we think is more solid than what you typically see in the
nonbranded non-character driven movie."
Disney shares closed down 3% at $26.04 on Monday while Marvel
shares jumped 25% to $48.37. Shares of DreamWorks Animation SKG
Inc. (DWA) were up 6.5% to $33.76 on the prospect of more
acquisitions in media and entertainment.
"This is another sign that confidence is returning to the
marketplace," said Miller Tabak analyst David Joyce.
The Disney-Marvel marriage fits with the strategy du jour for
major media conglomerates such as Disney and Time Warner Inc. (TWX)
of driving revenue from popular content over time across the globe
and multiple technology and entertainment platforms.
Disney has a unique array of businesses to execute the strategy
with its global sales and distribution infrastructure, its theme
parks, its video game and merchandising businesses and its cable
and broadcast TV networks. For its part, Marvel is a particularly
attractive target for the company given its appeal to younger male
audiences, while Disney has shown outsized strength with females
through properties like Hannah Montana and the Jonas Brothers.
High Price For Premium Assets
Under the agreement, Marvel shareholders will receive $30 a
share in cash plus about 0.745 Disney share for each Marvel share.
Based on Friday's closing prices, the deal is valued at $50 per
Marvel share, about a 29% premium.
Miller Tabak's Joyce noted that Disney is paying a steep
valuation for Marvel, but he views the deal as a "good long-term
strategic move" for the company.
"You can't expect to pay a bargain price for premium assets,"
said Disney Chief Financial Officer Tom Staggs. "Marvel is worth
more inside Disney than outside Disney."
During the conference call following the announcement, Staggs
said the company will issue roughly 59 million Disney shares in
order to consummate the deal, but the company plans to repurchase
the same number of shares over the next year to avoid long-term
dilution to its existing shareholders.
Staggs said he expects the deal to be dilutive to Disney
shareholders in its fiscal 2010 by a mid-single-digit percentage,
but he expects it to be accretive to shareholders within two
years.
The companies said the amount of cash and stock in the deal will
be adjusted at closing so that the value of the Disney stock is at
least 40% of the purchase price. Besides shareholder backing, the
deal will require antitrust approval.
Standard & Poor's reacted to the deal by placing Disney's
long-term corporate credit rating on CreditWatch with negative
implications, signaling a likely downgrade. For their part, Fitch
Ratings and Moody's Investors Service affirmed their credit ratings
on Disney.
Marvel has long-term production and distribution deals in place
with Disney competitors, including Sony Corp.'s (SNE) Sony
Entertainment, News Corp.'s (NWSA) 20th Century Fox Films and
Viacom Inc.'s (VIA) Paramount Pictures, which complicate the
company's strategic position.
News Corp., which is parent of Dow Jones & Co., publisher of
this news service, declined to comment. Sony didn't respond to a
request for comment, while Paramount said in a statement that it's
deal with Marvel won't be affected by the deal.
In many cases, it will take years before Disney can garner
anything more than licensing fees from some key Marvel characters,
but Staggs said those revenue are attractive and the company will
have the option of ending those deals over time and integrating
them into Disney.
Marvel Chief Executive Ike Perlmutter will continue to oversee
the Marvel properties, which have branched out into animated
television series and live-action films. Marvel earned a net profit
of $206 million last fiscal year, up 47 percent from a year
earlier, on revenue of $676 million.
-By Nat Worden, Dow Jones Newswires; 212-416-2472;
nat.worden@dowjones.com
(Mike Barris contributed to this report.)