Could Drooping Disney, Other Media Companies Be Takeover Targets Amid Pandemic?

The wide-ranging effects of the COVID-19 virus have pummeled media & entertainment stocks in particular, sending many of them plummeting to prices not seen in years.

That's particularly the case for Disney, the biggest Hollywood studio, but also one particularly hard hit by the virus across its many operations. In turn, Rosenblatt Securities analyst Bernie McTernan couldn't help wondering if Apple or some other tech giant with a vast wad of cash might be feeling opportunistic.

In a research report published Friday, McTernan suggested bargains are out there for companies looking to move into media and entertainment.

“Mega-cap companies with large cash balances and whose equity outperformed Disney over the last three weeks, like Apple, could take advantage of the volatility," wrote

No one may be in the mood for M&A but deals are to be had. McTernan pointed out that Disney, by far the biggest and most successful Hollywood studio in recent years, has seen a third of its market capitalization, roughly $85 billion, evaporate over the past few weeks.

Apple, meanwhile, has about $107 billion in cash and securities on hand. Though its shares dropped more than 9 percent on Monday, it still had a market capitalization of more than $1.1 trillion.

"The upside from acquiring Disney would be securing their content/streaming strategy and potential synergies from adding the emerging Disney ecosystem to the iOS platform," McTernan wrote.

By early afternoon today, Disney had drooped to about $94 a share, for a market capitalization of $170 billion. The company has been hit on several sides by the COVID-19 reaction.

Its parks and resorts, which provide about 30 percent of revenues, have been closed at various times in Asia, Europe and the United States for weeks. Disney also closed all its North American stores. Meanwhile, its cruise lines are going to be particularly vulnerable to lost business, perhaps for months or years to come, after multiple coronavirus outbreaks hit the industry.

Disney's movie studio had to delay the debuts of its live-action Mulan remake and two other films, and its latest Pixar entry, Onward, has had a mediocre first couple of weeks. Though Onward won this past weekend’s domestic box-office crown, it brought in only $16 million as part of the film business' worst weekend in 20 years.

And the other mainstay of Disney’s formidable asset base, ESPN, is also getting beaten up. Every major sports league has cancelled or suspended play, taking hundreds of hours of programming off the cable channels, OTT subscription video service ESPN+ and even its talk-radio network. That hits its ad revenues, subscription signups and churn, and more.

Meanwhile, if Apple bought Disney now, McTernan suggested it would shore up another corner of the Apple empire, its subscription-video service Apple TV+. Disney+ and Apple TV+ launched within days of each other in November, and the Mouse House entry is generally perceived to have had a much stronger start. Disney recently announced that the service had signed up 28.6 million subscribers through early February.

Disney also controls streaming service Hulu, which it is bundling with ESPN+ and Disney+ for less than $13 a month. Hulu also offers a “skinny bundle” of TV channels, Hulu + Live TV.

"Disney+ could solve Apple's content problem as we believe AppleTV+ is off to a relatively slow start," McTernan said.

Disney isn’t the only media bargain out there if any cash-rich companies still have an appetite for acquisitions amid all the market uncertainty. Consider these for your mogul shopping list:

• ViacomCBS. After a four-year battle that led to last year’s merger of the two companies controlled by the Redstone clan, and a string of smart digital acquisitions led by AVOD service Pluto, VIAC seemed set to thrive with a mix of broadcast, cable, and streaming assets, and a willingness to partner with other outlets for production and distribution. Shares are down to about $14 apiece, a far cry from the company’s 52-week high of $52. ViacomCBS has a market cap of barely $9 billion now.
• Sinclair Broadcasting Group. One of the nation’s largest broadcast station groups, Sinclair spent more than $10 billion to buy part or all of nearly two-dozen regional sports networks formerly run by Fox. It also owns the Tennis Channel, the STIRR hybrid AVOD service, and a serious investment in technology that enables the next-gen ATSC 3.0 digital-broadcast standard. But the company’s market cap is now a mere $1.3B.
• Future Today. After a $60 million acquisition last year by Cinedigm fell through, the ad-supported video service is back in play, and looking for partners. It has more than 700 channels, led by HappyKids.TV and Fawesome.TV, with content from more than 350 partners. It claims 6.5 million monthly active users on most of the big streaming devices, several Connected TV makers and Microsoft Xbox.
• MGM. The venerable studio was reportedly in acquisition talks with Apple and Netflix, among others, before the market collapsed. The privately held company is still out there, with a huge library that includes more than 4,000 movies, including 18 Best Picture Oscar winners, the James Bond, Rocky and Pink Panther franchises and more. It also has more than 10,000 hours of TV shows, including a string of recent hits produced for other company’s networks. And the next James Bond movie, No Time to Die, has been pushed to later in the year because of the virus. That should provide a nice bottom-line boost to whomever owns the studio then.

If you wanted to cobble together a smaller version of what Comcast has been building on top of NBCUniversal and its Xfinity X1 platform – recent acquisitions include Sky and Xumo, and the launch of Peacock – you could do it pretty cheaply with these legacy and free-TV pieces. Or you could hunker down and hold onto your cash in a time of deep uncertainty. Consider that approach a case of fiscal distancing.