Apple could potentially find the cash to pull off a $200 billion-plus takeover Disney — creating a company worth $1 trillion with “almost limitless opportunities in content and technology.”
That’s according to a speculative analysis from RBC Capital Markets, which in a note to client Thursday said such a colossal tie-up would be contingent on Apple getting tax breaks to “repatriate” overseas cash.
“Recently, investors have increased their expectations that Apple could seriously consider acquiring Disney,” RBC analysts Steven Cahall and Leo Kulp wrote in the note.
A combined Apple-Disney would create an instant competitor to Netflix that would take advantage of the Mouse House’s content and Apple’s user base, the anlaysts speculated. Other benefits: integrating Apple consumer tech as experiences in Disney’s theme parks; and landing global streaming sports rights for ESPN via the combo of Disney-backed BAMTech and Apple distribution and a strong balance sheet.
“Content is a major focus for Apple, target size is not an issue, and Disney offers an avenue to diversify away from hardware without diluting the strong Apple brand,” RBC’s Cahall and Kulp wrote.
The M&A rumor mill got new grist last fall, when Apple chief Tim Cook told analysts that the tech giant was “open to acquisitions of any size.” In addition, Apple execs met with Time Warner honchos in late 2015 in a discussion that raised the possibility of a merger — before AT&T moved on its $85 billion bid for Time Warner.
The Apple-Disney M&A chatter comes as analysts in the last few months have debated the possibility that Disney would make a move to buy Netflix — a highly leveraged transaction that some view as needlessly risky.
But would Apple shareholders support such a bet-the-company move? Assuming a 40% premium for Disney, the deal would carry a hefty $237 billion price tag. If Apple investors balk, Disney could consider spinning off assets like ESPN and theme parks to make the deal more palatable.
Another caveat: Apple would need U.S. regulators to give it a “tax holiday” to repatriate offshore cash to fund an acquisition of Disney. Assuming Apple could obtain a 9% tax rate, it would effectively have access to cash of $223 billion, RBC noted. “Even though investors might expect higher cash returns in form of buybacks/dividends, strategic uses are likely to take precedence,” the analysts wrote.
Per RBC, the merger of Apple and Disney would be highly accretive to earnings, to the tune of 15%-20% increase in earnings per share based on the presumed 40% premium deal price and Disney’s low debt load.
“We like Disney’s fundamentals. Assuming Apple sees the same thing and has the cash, investor anticipation of a prospective transaction only adds conviction to the momentum we see in Disney’s shares,” Cahall and Kulp wrote.