Disney shares have been doing so well lately that even a small increase can lift them to a 52-week high. That happened this morning, with a less than 1% increase, but with some interesting help: a pair of reports from RBC Capital Markets that take a deep-dive look at the popular speculation that Apple might want to buy the Magic Kingdom.
Don’t get too excited yet: The odds of that happening are just “greater than 0%,” say analysts Steven Cahall (who covers Disney) and Amit Daryanani (covering Apple).
But the stars could align. Apple might be able to tap $200 billion it stores offshore in low tax countries if the Trump administration offers a repatriation holiday in conjunction with a corporate tax cut. Disney has a market value of about $180 billion.
And if it bought Disney, then it would “create a ~$1 trillion company with almost limitless opportunities in content and technology,” Cahall says.
Daryanani says “If there’s a deal out there that would strike fear in the hearts of Silicon Valley and Hollywood, this could be it.”
Disney and Apple are already close: Disney CEO Bob Iger sits on Apple’s board. A sale to Apple also would solve the entertainment giant’s struggle to find a successor for the CEO, who recently agreed to stay to mid-2019.
More to the point, a combined company could become a subscription VOD power “leveraging [Disney’s] content and [Apple’s] distribution + installed base,” Cahall says.
That could be especially important for Apple because “the next chapter in [Apple’s] growth will be driven by Services,” Daryanani says. “Placed at the centre of hundreds of millions of users’ lives—social interactions, productivity/business need, and entertainment experiences—Apple+Disney could create a moat virtually unassailable by competition.”
Liberty Media’s John Malone has openly toyed with the idea of an Apple-Disney union. The technology company might be forced to make a decision if another big player — following AT&T’s $85 billion deal to buy Time Warner — took a run at Disney, the only other Big Media company not controlled by a single shareholder.
In his view, though, Disney might have to spin off its domestic assets led by ESPN and ABC, freeing Apple to maintain its global focus.
Cahall says that’s not necessary, but “certainly an option.” It would free Disney from its conundrum of needing to raise prices to cover the rising cost of its licensed sports rights at the same time price-sensitive consumers have options to the bloated traditional pay TV bundle.
“Cord cutting may be a concern for [Disney] as a standalone stock, but it probably wouldn’t be enough of an issue for [Apple] investors to be all that concerned, especially if near-term margins are expanding,” Cahall says.
ESPN might be attractive to large pay TV distributors such as Verizon or Charter, or to “a new entrant to the pay TV universe” such as Google, he says. The analysts figure the sports enterprise might sell for $36 billion — returning $14.3 billion to Apple after accounting for taxes and a payment to Hearst for its 20% stake.
Apple also might want to spin off the theme parks and real estate, although that would be “a more complex and less obvious transaction.”
And Apple might want to keep the theme parks, seeing them as testing grounds for new products, the analysts say.