Disney’s $4 billion acquisition of Marvel, home of Spiderman, X-Men and The Incredible Hulk, has been described in many terms. It’s impossible to describe the deal without mentioning that Spiderman is joining forces with Mickey Mouse. But the deal is really about creativity. How do you smooth out the boom and bust cycles of creativity via acquisitions?
The short answer: You increase your stable of characters so you have a better chance of creating a never-ending stream of hits.
Disney is paying up for Marvel. Marvel shareholders will get $30 in cash and 0.745 Disney shares. Marvel was valued at $50 per share on Monday, a 29 percent premium from Friday’s closing price.
Why the premium? It’s about creativity. Disney has tons of creativity, but it also realizes it needs an infusion of brainpower—not to mention characters—every once in a while. Disney bought Pixar for a creativity boost. Marvel is the same deal.
J.P. Morgan analyst Imran Khan writes in a research note:
We believe that Disney is in an unfavorable creative cycle which has impacted the earning power at the Studio Entertainment and Consumer Products segments. We expect Disney to focus on driving incremental revenue from Marvel licensing properties, including growing the international sales. Another area where we think Disney could make a difference is development of underexploited Marvel characters. We think this acquisition implicitly supports our thesis that the company will continue to face challenges in the mid term in developing new properties to drive earnings growth.
That’s a fancy way of saying that Disney needs to double-down on its characters and find creative ways to market them.
Laura Martin an analyst at Soleil writes:
Great CEO’s typically manage to longer time frames than Wall Street’s. Disney’s acquisition of Marvel is a great example. The good news for Disney shareholders is that the incremental value of putting some of the most recognized comic book characters in the world into the hands of some of the most creative minds in the world, coupled with Disney’s marketing machine and distribution juggernaut, suggest earnings upside over a 3-5 year time frame. Disney creative geniuses buying the Marvel character library gives some of the best brand creators and marketers on Earth a huge sandbox to play in.
The rub: Disney shareholders will pay the price for the next 24 months in share dilution a senior debt downgrade. But if Disney can smooth out the creativity cycle the deal may just work.
