California-based Disney (NYSE:DIS) is a superb company that has an incredibly bright future. This is because Disney has a number of lucrative and timeless projects, ranging from movies to amazing theme parks to extremely attractive merchandise. That said, I think it will be even stronger when it combines forces with Marvel Entertainment (NYSE:MVL)
Disney/Marvel Could Be Profitable
Earlier this week it was announced that Disney is planning to acquire New York-based Marvel Entertainment for a hefty $4 billion. If all goes well the deal could close by the end of the year.
Marvel's biggest benefit is its characters, including Iron Man and Spider Man, and Disney might be able to take those and/or other characters a long way. In other words, build out Disney movies around characters, and develop vast franchises, the way the company developed its popular Mickey character or its numerous princesses.
Analysts are expecting a lot from Marvel. A quick look at the estimates show that The Street is looking for the company to earn $1.39 this year and $2.23 a share next year. That's a pretty hefty rate of expected growth. It's good to see Disney go after a quality company that not only has big name characters under its belt, but that is also expected to be profitable. I think that will make the deal palatable for shareholders.
Then there is the potential for cost savings. Almost any time you combine two companies of such size there are bound to be some redundancies that can be eliminated. I would like to hear more from than front, as I believe that could spur interest in the stock among individuals and maybe institutions. The potential catalysts that this combination might inspire may also attract the analyst community. Additional coverage could be a positive as well.
The Risks
Although this combination could be a big positive for shareholders, there are some risks too. For example, if something was to happen, and the deal fell through, some existing shareholders may become disillusioned and sell. In addition, there may be a risk (assuming a deal goes through) that some synergies will not be fully realized. Finally, I think that Disney may have to convince some in the investment community that this is a good idea.
Food for Thought
There is chatter that maybe DreamWorks (Nasdaq:DWA) could end up being a takeover target. A CNBC writer, Julia Boorstin, pointed out in a recent article that: "DreamWorks Animation is a potential target because its unique digital animation could be a good complement for a studio like Time Warner's Warner Bros. which doesn't create that kind of intellectual property."
Bottom Line
I like Disney as a standalone and I think I'd like it even more if it were to combine with Marvel. There is some serious potential (if a deal closes) for cost savings, and for Disney to leverage Marvel characters, which would benefit shareholders. (For another take, see 8 Reasons M&A Deals Fall Through.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
