Disney Earnings Today: Now There's A New Obvious PE Buyer To Take A Bite Out Of Apple
Kevin Mayer’s Return, Coupled With Blackstone's Trillions, Make This A 2 Horse M&A Race
Later today after markets close, all eyes on Wall Street and in the media industry will be trained on Disney as it announces its Q3 2023 earnings. And question number 1 by analysts to CEO Bob Iger should be his M&A state of mind, especially in light of recent reports that former top Iger lieutenants Kevin Mayer and partner Tom Staggs - both now co-CEOs of Candle Media - have been retained in a “consulting capacity” to help decide ESPN’s fate.
This intriguing development followed Iger’s recent series of uncharacteristic comments that already supported the notion of Disney’s potential sale of assets, with Apple being the obvious potential buyer for all the reasons I laid out in my recent column in TheWrap.
What a difference a couple weeks make. Welcome back to the Magic Kingdom for your next Disney Act, Mr. Mayer! Now people, we have two leading sheriffs in town to make Disney the happiest place on earth once again. Right now, it isn’t (the happiest) for Iger and investors. Disney’s stock is down over 50% from its highs a couple years back and continues on its downward trajectory. Particularly troubling are plunging revenue and profits for ESPN and its other cable networks (down 6% to $14 billion and 29% to $3 billion, respectively, for the first six months of fiscal year 2023). And Mickey sees troubling transformational headwinds everywhere amidst increasingly tech-driven media’s new world order.
At first blush, it seems odd for Mayer and Staggs to be retained in a “consulting” capacity, don’t you think? After all, it’s not as if they don’t have other things to do. Both run media holding company Candle Media which firsts acquired Reese Witherspoon’s Hello Sunshine for a reported $900 million and later Moonbug Entertainment for a cool $3 billion. But look closer and follow the money. Candle Media, of course, is backed by Blackstone, the massive private equity fund that manages $1 trillion in its M&A coffers. You heard me right, that’s “trillion” with a capital “T” - a lot of cheese to make massive deals.
It all makes so much sense now, doesn’t it? Mayer ran Disney’s strategic planning group for years and engineered all of its massive game-changing acquisitions of the past two decades – M&A that is the envy of the entertainment world. Most notably, these included Steve Jobs’ Pixar ($7.4 billion), Marvel Entertainment ($4 billion) and Lucasfilm ($4.05 billion) – all incredible bargains in hindsight. Now THAT’s a franchise trifecta! Yes, Mayer also led the $71.3 billion acquisition of 20th Century Fox’s entertainment assets (where many pundits believe Disney overpaid), but don’t hold that against him. The jury is still out on that one. Even if that deal doesn’t ultimately pan out, a .750 slugging percentage is pretty damn good.
The point is that Mayer is a strategy and deal guy through and through, and Candle Media’s raison d’etre is M&A. No one knows Disney’s assets – or what to do with them - better than he does, and his partner Staggs is right there to support. He spent years at Disney himself, ultimately serving as its COO.
Mayer, Staggs and their Blackstone benefactors theoretically could mastermind a takeover of all of Disney by leveraging massive debt, as well as cash. But that’s not likely, particularly in this era of continuously rising interest rates. Much more likely would be for Mayer and Staggs to buy what they deem to be Disney’s tastiest morsels. Since they are “consulting” for Iger about ESPN’s fate, that’s an obvious place to start. After all, one person’s “consulting” is another person’s “due diligence” in advance of a potential acquisition.
ESPN and related properties likely would command at least one-third of Disney’s current depressed market cap of about $150 billion (a buyout premium would take the number significantly higher, of course). Disney’s “linear networks” generated about one-third of Disney’s overall revenue last quarter. Media M&A multiples on financial performance can vary widely, with upward trending relevant financials rewarded on the higher end as compared to ESPN’s current downward trend.
After an acquisition of one or more parts, Mayer and Staggs would return to their mothership to work the magic that they had hoped to bring to Disney as toppers a few years back before Iger instead anointed the later dismissed Bob Chapek. Private equity’s game – which means it would be Mayer’s and Stagg’s game - is to “streamline” and accelerate growth within a five to seven year period and then liquidate, taking massive profits all along the way. Disney’s distressed stock price certainly makes this possibility more probable today.
Apple is still the leading contender to buy Disney assets for all the reasons I laid out in my earlier article before the Mayer/Staggs news broke. But private equity runs a close second. And apart from those two mega-players, I see no other obvious buyers. Traditional media (studios, broadcasters) simply can’t compete. They don’t have the scale, means and strategy, and Wall Street would boo and hiss. Nor do I see any of the other tech-driven media behemoths like Microsoft, Google, Amazon or Meta having a leg up. While each may see the value in live sports – and several of them do - the brand and cultural fit, not to mention overall panache, just likely aren’t there for Iger. They simply aren’t worthy.
Iger, of course, denies that ESPN is for sale, even as he calls for “strategic partners” to right that ship. But methinks he protest too much. Why return to Disney tumult after already cementing his legacy of one of the great all time Hollywood moguls?
It likely means one thing and one thing only. He has transformational M&A in mind. And Iger’s obvious “win” – culturally, financially and reputationally – would be either Disney-fied Apple (both he and Jobs served on Apple’s board for years) or Disney-fied private equity (both Mayer and Staggs bleed Mickey’s blood through and through).
So Disney investors, consider this newsletter your blueprint for today’s earnings call. Unlike Iger’s recent highly charged comments to Wall Street about Hollywood talent’s “unreasonable” strike demands, it’s entirely reasonable for you to probe his appetite for selling individual rooms of his Mouse House.
Kevin Mayer and Tom Staggs are the right leaders for Disney and it's investors ; Grateful Bob Iger has brought back Kevin and Tom Staggs to help consult . Bob Iger is an amazing leader to realize even though he made a mistake not choosing Kevin to lead a few years back that it is best for the future of Disney and it's investors to reunite the family. Kevin and Tom now has the Candle Media empire to drive innovation and emerging brands even if they do return to the Mothership Disney. Cheray Unman