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Over the years, Walt Disney Co (NYSE: DIS ) has established a solid track record when it comes to acquisitions. That's one reason why investors, for the most part, supported the company's decision to buy most of the assets of Twenty-First Century Fox Inc (NASDAQ: FOX )(NASDAQ: FOXA ). With that deal now in potential jeopardy, the question becomes, "What will Disney buy next?" And there are a number of candidates for Disney's next acquisition.
To be sure, it's too early to call the Fox deal doomed. But Comcast Corporation (NASDAQ: CMCSA ) reportedly is stepping in with a higher bid - and that puts Disney in a tough spot. Fox doesn't fix the core ESPN problem for Disney. A rumored bid from Comcast in the $60 billion range would require Disney to offer over 40% of its current market capitalization - and make it very reliant on the deal succeeding. And even an accepted bid could face antitrust concerns, depending on how the merger between AT&T Inc. (NYSE: T ) and Time Warner Inc (NYSE: TWX ) plays out in court .
So if the Fox deal falls through - or even if it doesn't - will Disney look again to M&A to build out its content? It seems likely. What will Disney buy next? Here are some candidates for Disney's next acquisition.
Disney isn't going to buy all of Sony Corp (ADR) (NYSE: SNE ), as it has no interest in semiconductors, electronics, or a Japan-based insurance company. But Sony Pictures might be a different story.
After all, part of the logic of the Fox deal was that it would bring back rights to the X-Men and the Fantastic Four , reuniting the Marvel universe under Disney's roof. But if Comcast scoops those characters up, Disney could look to Sony, which owns the right to Spider-Man .
Meanwhile, Sony's CEO - an advocate for growing the film business - has stepped down, raising speculation that Sony might look to dump Sony Pictures. Beyond Spider-Man , Sony's cupboard is kind of bare (it has Ghostbusters and Men in Black , among other franchises). But it would be a logical consolation prize - and fit with Disney's strategy of building up content for its planned streaming services .
Viacom, Inc. (NASDAQ: VIA )(NASDAQ: VIAB ) is reportedly going to merge with CBS Corporation (NYSE: CBS ), 12 years after the companies split. Even that aside, it's unlikely Disney, whose networks are struggling, would want to buy all of Viacom and bring on more exposure to cable subscriber defections.
But Viacom's Nickelodeon brand could be an intriguing fit - and what Disney will buy next. It has kid-friendly franchises that could augment a family-targeted streaming service from Disney. It's struggled for years under Viacom's ownership - and could be a turnaround candidate under new leadership.
On the other side, turning an asset into cash for share buybacks and/or debt reduction could assuage CBS shareholders, in particular, who are not particularly thrilled with the merger. (Both companies are controlled by the Redstone family, leaving other shareholders with no real say.) CBS itself hasn't been great with children's programming. CEO Les Moonves joked on the Q1 conference call that "I think we have 10 to 15 children watching every Saturday morning" - and it could also argue that Nickelodeon would be better off in Disney's hands.
The one area where Disney traditionally has gained little traction is in video games. Buying Electronic Arts Inc. (NASDAQ: EA ) would fix that problem. EA already licenses the Star Wars franchise for its Battlefront series. And while Disney CEO Bob Iger actually had to step in to the monetization mess that surrounded that game last year, Disney might forgive EA for that error - or prefer to have its valuable franchises managed in-house.
EA clearly would be the pick of the "Big 3" in game publishing. It's hard to imagine Disney buying Take-Two Interactive Software, Inc (NASDAQ: TTWO ) and owning Grand Theft Auto . The same goes for Activision Blizzard, Inc. (NASDAQ: ATVI ) property Call of Duty - and Disney probably doesn't want the declining World of Warcraft franchise, either.
But Electronic Arts would be a nice fit. EA's sports franchises would have some synergies with ESPN, particularly with eSports growing in popularity. A likely price tag of about $50 billion would make this is a relatively large deal for Disney. But it would be immediately accretive from a profit standpoint, and perhaps help expand or at least stabilize ESPN's brand going forward.
Disney was a rumored buyer of Twitter Inc (NYSE: TWTR ) back in 2016, but I didn't see the logic then, and I don't see it now. Twitter does provide reach through its platform - and its growing video capabilities could support Disney's own online ambitions.
But an acquisition of Twitter likely would cost Disney in the range of $30 billion - and that money seems better spent on building out its presence. Twitter's abuse problems and general tone hardly seem like a good fit with Disney's properties (which usually max out at PG-13). It's still possible that Iger could see value in Twitter's 300 million-plus users - but I was skeptical in 2016 and remain even more so at the moment.
No Disney deal has seen more speculation over the years than an acquisition of Netflix, Inc. (NASDAQ: NFLX ). But the huge rise in Netflix stock has created a pretty significant problem.
At this point - perhaps amazingly - Netflix and Disney would be almost a merger of equals. Including debt, Walt Disney Co is worth about $170 billion, against about $150 billion for Netflix.
With Disney going its own way on streaming , a Disney-Netflix tie-up isn't going to happen. Instead, both titans are set to be rivals in the streaming game for years to come. Whether Disney can succeed - with or without the help of acquisitions - will determine whether Disney stock can end its multi-year malaise.
As of this writing, Vince Martin has no positions in any securities mentioned.
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