This article is written by Alivya Sahay, pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from Lawsikho.
A merger or an acquisition of any company has got manifold ruminations, growth and development being its pivotal reasons. When the integrations between the companies are executed correctly it can increase the power base it holds in the market as well as increase its synergies, foray into new market shares and explore better opportunities, reduce the competition between entities and gauge access to a newer customer base, hence, boosting its revenue.
The longing rumour in town that Apple will be buying Walt Disney Co. is not new. In fact, it travels back to 2006 when Disney acquired Pixar. This made Late Steve Jobs, Pixars’s Co-founder, one of the largest shareholders of Disney and also had an entry as a member into its board. The rumours hovered for around for 15 years before it and got a new birth when former Disney CEO Bob Iger in his autobiography, “The Ride of a Lifetime: Lessons learned from 15 Years as CEO of the Walt Disney Company” noted that if Jobs would not have died in 2011, A Disney and Apple merger would have happened. “I believe that if Steve were still alive, we would have combined our companies, or at least discussed the possibility very seriously,” Iger wrote. A consolidation of Apple and Disney would have required the consent of the Board and the investors of the two organizations which could pose a bit of a hurdle as Jobs had a 7.4% stake in Disney after selling Pixar. At the point when giant corporations consolidate, questions concerning as to what all ramifications will be of such dealings on to the customers promptly start to whirl.
Why is the Apple-Disney rumour in the market these days?
This rumour is again surfacing the town as the crashing stock market and the wave of uncertainty has hit rock bottom due to the coronavirus pandemic all across the globe. And if Apple is serious about merging with Disney it should do it at a negotiating price and hence, devise the same as a winning plan. Disney’s Asian parks were shut for a large part of the long stretches of 2020 and 2021, and that has assisted with pushing Disney’s stock prices down to roughly 35% up until now. This presents a superb chance for Apple to expand its Apple TV web-based streaming feature by procuring Disney and its competitor Disney streaming service.
As a new contestant to the streaming conflicts, Apple TV has up to this point attempted to have unique and original content in its platform to remain in the game. The market’s present unpredictability could play to the upside of uber cap organizations with humongous cash balances and whose equity outflanked Disney. Apple is in an especially solid situation for that sort of obtaining, first and foremost due to the general underperformance of Apple TV+ up until now and furthermore in light of the fact that the computer giant as of now reports about $107 billion in cash and securities that it possesses. Disney as of now is one of the world’s most important brands, even though its stock prices are bearish right now and no tenable source on Earth believes that the economic slump will stop the organization. So it appears to be improbable that Disney would consent to obtain at fire-deal pricing.
The aftermath of the merger if it were to take place
It would be interesting to see the dream deal between Apple and Disney materialise. Purchasing Disney would make Apple perhaps the biggest proprietor of cable networks in addition to a significant transmission network in ABC. However, the issue is that the advantages of a merger between Apple and Disney could be acquired by cooperating and working together but it is likely that it wouldn’t fundamentally increase the value of either of the companies enough to justify mergers to its shareholders. That load of moving parts would confound.
Apple’s centre business, which principally centres on selling equipment and securing clients via different policies and across different continents. Assuming control over Disney’s organizations, alongside its higher obligation and working costs, would choke Apple’s free cash flow and its potential to raise dividends or buy back its shares. The expenses will be excessively high, and the merger would be muddled and intricate. Apple would likewise be taking on Disney’s rising content creation costs. The kind of money that Disney spends on its streaming content is worth noting: $1 billion in 2019, and anticipates that that number would ascend to $2.5 billion by the year 2024. Apple would likewise have to adjust the financial plans of Disney’s gigantic film and media habitat, just as the extension expenses of its amusement parks and resorts. However, Apple wouldn’t want to miss this splendid opportunity of expanding the demographic user base, conditioned to the availability of fresh content that it could procure from the merger with Disney.
A merger would fortify the two companies, giving Disney better distribution access across the globe for its fresh content as customers increasingly go to their cell phones to watch the same, while Apple could construct the Internet-based video service it has for a long time looking for. The joint success of the Disney and Fox libraries on pre-setup streamers Disney and Hulu/Star would permit Apple to scrap the disappointing trial that is Apple TV. It could then use Disney’s current client base trial (that is more than 150 million subscribers across the globe) and worldwide reach and vice-versa.
Purchasing Disney would likewise mark a take-off from Apple’s music strategy, weaken its capacity to be an all-inclusive resource for all kinds of content and send an implied message about the growth and development of its iPhone business.
It would likewise have a huge balance sheet and the specialized capacity to pursue the transmission rights for different sports and other live events; Apple innovation could likewise be incorporated into Disney amusement parks. With the knowledge of Disney’s major M&A transaction, it is observed that Disney merges and acquires its competitors to get access to more intellectual property in terms of media contents including films, TV Series, and animations, whereas it expands these original or acquired content vertically as Disney monetized different contents into consumer products, parades in theme parks and even reproduce the original content.
If this merger would turn successful, Disney would be able to expand its film category which can be delivered to the subscribers of Apple. M&A is the fastest way of acquiring intelligence property, especially if the target is rich in content. Acquiring the media content giant directly is without a doubt more effective than securing a portion of its movies, as known as an establishment. The possibilities for the theorized arrangement would get amplified if the U.S. concurs on a policy of tax reform that sanctions allowing global giant organizations like Apple to bring back overseas benefits all the more effortlessly. Apple has more than $200 billion in cash flow outside of the United States that it at present can’t localize without paying a 35% duty rate.
It can be seen that probably Apple and Disney are a mismatched couple. Both of their working and service ecosystems are different. While the consumers of Apple are roped in because of the external services that it provides like iCloud, iTunes, iPhone, iPad, the App Store, and so on. Whereas Disney on the other hand, takes a different approach, i.e. it has the potential to generate revenue via the success of a hit movie or show or even from a popular thematic park. This merger would not help Apple in increasing its revenue from the services that Disney offers. However, Apple would definitely benefit from the content that is owned by Disney on its streaming platform. Disney’s content business would help Apple to raise a notch higher over its competitors thriving in the market.
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