20 April 2019
Equity analysts are in general positive about the synergy prospects if Apple and Walt Disney merge. Photo: Walt Disney
Equity analysts are in general positive about the synergy prospects if Apple and Walt Disney merge. Photo: Walt Disney

Why investors shouldn’t be excited about Apple-Disney merger

Rumors about a merger between Apple Inc. and Walt Disney have been circulating in the market for a couple of years. While neither has denied such a possibility, there has been no progress either.

Recently, institutions such as RBC Capital and hedge fund Margate have openly suggested that the merger would give both companies a major boost.

The rumored deal seems quite sensible. Following years of earnings growth, Apple is sitting on a huge and ever increasing cash pile.

The firm had US$204 billion cash on hand as of 2016 compared with US$138.4 billion in 2014.

For numerous reasons, like preserving funds for future investments, Apple has not made any huge dividend payouts.

Buying Disney, which has a market value of US$170 billion, is well within Apple’s financial ability.

Disney has a very fragmented shareholding structure. Its largest shareholder, Vanguard, holds just 5.8 percent.

RBC Capital suggests that if Apple offers both cash and shares for Disney shareholders, the tie-up is very likely to be backed by many institutional shareholders.

Many fund managers are positive about the potential synergy between Apple and Disney.

Apple is the world’s largest supplier of smart gadgets like the iPhone. And it has been trying to expand into content production such as movies and TV shows in recent years.

Merging with Disney could offer a large number of animation content for Apple, as well as a number of intellectual property brands like Mickey Mouse, Star Wars and Iron Man. In addition, Apple could gain access to entertainment and sports programs of ABC and ESPN.

The deal would hence enable Apple to compete with Netflix and Amazon.

Meanwhile, Disney can also boost the lure of its theme parks by injecting more high-tech elements.

In fact, through the sale of Pixar to Disney, a deal settled in Disney stock, Apple founder Steve Jobs was at one point the largest shareholder of Disney, holding a 7 percent stake.

Given the nice match in terms of business and the historical relationship, the potential tie-up has recently again become a hotly discussed topic in the financial market.

However, with share prices of both firms near historical highs, such talk reminds me of the US$181 billion merger between AOL and Time Warner in 2000.

The deal was considered a smart move at the time but it turned out to be one of the worst in the annals of business.

Market excitement about a mega M&A deal between Apple and Disney might be a warning of the already overstretched tech boom.

This article appeared in the Hong Kong Economic Journal on April 21

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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