M&A (mergers and acquisitions) deal as an instrument that increases Disney’s Global competitiveness
Contents
Introduction
1. Theoretical part and Metrological Basics of
M&A Deals as an Instrument That Increases Global Competitiveness
.1 Factors that Ensure Company’s Global
Competitiveness
1.2 Definition of Mergers and Acquisitions and
their types
.3 Motives and drawbacks of M&A Deals
2. M&A Deals of The Walt Disney Company and
Their Role in Increasing the Company’s Global Competitiveness
.1 The Walt Disney Company, its Activity and Main
Rivals
2.2 Competitiveness Growth after M&A Deals of
The Walt Disney Company
.3 Contribution of TWDC’s M&A deals to its
global competitiveness
3. M&A Deal as an Instrument that Increases
Disney’s Global Competitiveness
.1 Influence of M&A transactions on The Walt
Disney Company’s business segments
3.2 Improving the weakest segment of The Walt
Disney Company Using M&A Strategy
.3 Advantages for The Walt Disney Company after
acquisition of Activision Blizzard, Inc
Conclusion
Introduction
current economic conditions many companies seek for effective
development strategies in order to increase their global competitiveness, to
have higher profitability and total value. Today one of such strategies is
mergers and acquisitions deals. M&As is one of the most widespread ways of
development used by the majority of successful companies. These transactions
become the integral processes of the modern market relations.the level of
competition in the majority of fields of activity has increased sharply. That
is why there is a need for processes of mergers and acquisitions to ensure business
growth for the company which seeks to take the leading positions in the world
market. For this reason M&A deals can be considered as one of the most
important mechanisms that ensure company’s global competitiveness.experience in
the area of M&A transactions shows that approximately 76% of such deals are
terminated in failure. Thus, the integration strategy of growth has a positive
effect only under the condition that company correctly carries out M&A
transaction at all its stages: target selection and evaluation, settlement of
the transaction, the final decision and post-merger integration phase. total
cost of M&A deals declared in 2014 was nearly 3,1 trillion USD. It is the
largest indicator after 2007 and 2006 when the volume of M&A transactions
reached 4,62 and 3,91 trillion US dollars correspondingly. According to
Bloomberg, in 2014 11 most expensive transactions which worth more than 20
billion US dollars were declared, including the purchase of cable division of
Time Warner by Comcast Corporation for 45 billion US dollars and purchase of
the Irish producer of medical equipment Covidien by its American competitor
Medtronic for 43 billion US dollars.the experience of the leading international
companies’ M&A deals is extremely important for the Russian business.
Merges and acquisitions contribute the integration of national economy into the
world one when Russian companies enter the world market. This integration has
two main directions. Foreign companies buy entirely or partially Russian
operating companies, introducing their capital, modern level of management and
technologies. The Russian companies also use merges and acquisitions for the
expansion on the foreign markets. The Russian market of M&As shows a
tendency to growth within the last decade. Further growth and expansion of
geography of a foreign production network of the Russian companies can make
such integration symmetric (unlike unilateral penetration of the foreign
companies into the Russian economy), making it stronger and more steady in the
long term.this paper we will analyze the most significant M&A deals of The
Walt Disney Company and identify the effect of each transaction on each segment
and of the business in a whole in terms of the increase of global
competitiveness of the company. Afterwards, we will identify the most
vulnerable segment and suggest companies, which Disney can acquire in order to
increase its market share in this segment and thereby increase the global
competitiveness of the whole conglomerate. To do this, features of global
competitiveness, types of M&A deals as well as the impact of M&A deals
on the company’s competitiveness growth and major financial and market data of
target companies will be considered.relevance of this study consists in the
fact that M&A deals are becoming more and more popular as it is the
strategy that is able to significantly increase global competitiveness of the
company. TWDC is one of the leading companies in the entertainment market but
it seeks to become the world leader and to do so it has chosen the M&A
strategy. Thus, analyzing the impact of different M&A deals on the growth
of global competitiveness of The Walt Disney Company will prove the fact that
M&A deals play the crucial role in maximizing global competitiveness of the
company. Moreover, analyzing target companies and identifying the one that will
bring TWDC the most advantage will help it to move even further on the way to
becoming the world leader in entertainment business.main hypothesis of this
paper is that Disney Conglomerate uses the strategy of M&As successfully,
which helps it to increase significantly its global competitiveness in the
entertainment market.subject of the work is influence of M&A deals on the
global competitiveness of the company, and the object is - M&A deals of The
Walt Disney Company.
The goal of the study is identification Disney’s M&A
deals’ input in the company’s global competitiveness and suggestions on making
the company the world leader in entertainment market using M&A deals. Thus,
the main objectives of this work are:
— Define global competitiveness and
factors that ensure it;
— Consider M&A deals and their
types;
— Determine motives and drawbacks of
M&A deals;
— Analyze the most significant M&A
deals of TWDC;
— Define how each deal influenced
global competitiveness of The Walt Disney Company;
— Analyze how the deals affected each
segment of the company in terms of global competitiveness;
— Identify the segment which has the
least market share and is the most vulnerable one;
— Select among several target companies
one, that can be acquired by TWDC;
— Prove that this M&A deal will
bring the synergetic effect and increase Disney’s global competitiveness;
— Make a conclusion how M&A deals
influence global competitiveness and suggest to increase it by acquiring the
company that can increase the market share of one of its segments;, this work
aims to prove the fact that when the company has the right plan of business
restructuring and follows all the steps of the deal conscientiously, mergers
and acquisitions can help it to increase its global competitiveness and to
reach leadership positions in the market, as it has done The Walt Disney
Company. order to reach the set goals, the following sources of information
will be used: Internet, periodical data, statistics, research papers of studies
done on this topic, theoretical books and lectures of professor Klochko
O.A..theoretical base of the research consists of the works of foreign and
Russian economists in the field of mergers and acquisitions deals and also in
the field of global competitiveness, such as: R. Brealey, S. Meyers, John. C.
Van Horne, A. Damodaran, Michael C. Jensen, R. Roll, Y. Amihud and B. Lev,
David S. Scharfstein and Jeremy C. Stein, A. Devenow and I. Welch, Dennis C.
Mueller, Stephen A. Rhoades, A. Shleifer and Robert W. Vishny, M. Porter,
Philip Kotler, M. Fujita (1988), Paul R. Krugman (1991), Anthony J. Venables
(1996), M. Tohmo (2007), G. Ottaviano (2003) and Kern (2005).methodological
basis of research is made according to the general scientific methods of
descriptive, logical and comparative analysis, expert estimates methods,
approaches to company valuation during the M&A deals. paper consists of
three parts: Theoretical, Analytical and Practical. Theoretical part includes
all the major definitions and theories that are relevant to the topic.
Analytical part consists of considering the Disney’s most significant M&A
deals (acquisitions of Pixar, Marvel and Lucasfilm) and their influence on the
company’s activity and its global competitiveness. Finally, the main goal of
the Practical Part of the paper was to analyze all the operating segments of
TWDC, identify M&A deals’ influence on them and select the best company to
acquire in terms of its activity, financial performance, market multiples and
synergetic effect that can increase The Walt Disney Company’s global
competitiveness.
merger acquisition strategy market
1.
Theoretical part and Metrological Basics of M&A Deals as an Instrument That
Increases Global Competitiveness
1.1 Factors that Ensure Company’s Global Competitiveness
Competitiveness is the ability of companies to compete in
international markets. It is characterized by the development, production and
sale of goods and services worldwide. Competition occurs when a firm decides to
maximize its profits using global sources.competition is developing under the
influence of the main trends: decreasing differences between countries, the
emergence of new large-scale markets, free movement of technology and
aggressive competition by companies in the newly industrialized countries.which
seek to increase their global competitiveness often face a number of
difficulties which can substantially influence the business and can become a
stumbling block for them. There are the following obstacles:
· complexity of analysis and strategy
formation;
· distinction in production expenses;
· fluctuations of exchange rates;
· high expenses on transportation and
warehousing;
· different needs for goods or service
in the different countries;
· insufficient demand in the world
market;
· fast changes in technologies;
· relationship of firm with the local
governments;, despite the barriers mentioned above, every large corporation
desires to become a global leader in the industry. There are many factors that
affect global competitiveness of the company.interest for this issue increased
since 1990s when M. Porter's book “Competitive Advantage of Nations“ was
published. Today there is a great number of economists who consider the global
competitiveness’ influence on the economy. The most significant researchers in
this field are: Philip Kotler (1967), M. Fujita (1988), Paul R. Krugman (1991),
Anthony J. Venables (1996), M. Tohmo (2007), G. Ottaviano (2003) and Kern
(2005). Generalizing all the available theories, all of the factors that
influence global competitiveness of the company can be combined into the
following groups:
· Availability of competitive advantage;
· Above-average management;
· Market leadership;
Competitive advantage
“The term competitive advantage refers to the ability gained
through attributes and resources to perform at a higher level than others in
the same industry or market”.advantage ensures company's success in the foreign
market and it depends on the chosen competitive strategy. A choice of
competitive strategy of the firm in the industry is affected by two main
aspects.
. The structure of
the industry in which the firm operates, i.e. features of the competition.
Competition in the industry is influenced by five factors:. emergence of
new competitors (barriers to entry);. appearance of substitute goods or
services;. ability of suppliers to bargain;. ability of buyers to
bargain;. rivalry between existing competitors.five factors determine the
profitability of the industry because they influence the prices set by firms,
their costs, investments and other.
. Firm’s
position in the industry is primarily determined by its competitive advantage.
The firm can become the leader if it has a stable competitive advantage:
1) lower costs, indicating the company’s ability to develop
and to produce and sell comparable goods at lower costs than competitors.
) product differentiation, i.e. the firm's ability to satisfy
customer’s needs offering either goods of higher quality or goods with the
broad capabilities of after-sales service.
Competitive advantage leads to a higher productivity than
competitors have. Another important factor influencing the position of the firm
in the industry is the field of competition or the breadth of the objectives
that guide the firm within its industry.. Porter, the founder of competitor
advantage theory, distinguishes four features of the country affecting its
international success of a company. However his adherents developed his theory
and added two more features. The main determinants of the competitive advantage
include the following conditions: factor conditions, demand conditions,
strategy, structure and rivalry, existence of related and supporting
industries, chance and government role. This influence can be both positive and
negative.average managementquality of leadership is one of the main factors
that determine its success: leaders take the most important and long-term
decisions on activities, functions, and operation of the company. They affect
how successful the company will conduct its activities. Directors and owners
can both raise a company and ruin it.leadership that can make the company a worthy
competitor in the world market should perform the following functions:
· direction of the company to achieve
high economic and financial results, ensuring high quality of customer service;
· effective organization of work and
interaction between structural subdivisions of the company;
· strict adherence of measures to
fulfil the terms of agreements, obligations to the state budget, suppliers,
customers, banks;
· introduction of progressive forms of
business, the improvement of existing business forms, improvement of production
technologies and equipment;
· development of the plan for economic
and social development of the company;
· measures to provide the company with
qualified staff, better use of knowledge and experience of employees, creation
of a favorable climate in the team, safe and supportive environment for their
work and etc.is a key factor that determines the success of the company. In
order to perform the assigned tasks the company’s head must be able to quickly
find resources and to distribute them efficiently, to increase the productivity
of the organization and its units as well as to interact effectively with
employees, partners and senior managers. leadershipleaders usually take a
consistently strong position; they have the maximum market share, above average
profitability and overall fame. These companies typically provide an example to
competitors while changing pricing policy, introducing new products, expanding
distribution channels and increasing the intensity of the promotion activities.
The main strategic goal of the leader is to maintain its position, amplify it
and to occupy a dominant position in the global market. The dominant position
obliges the company to be active on three fronts. First, the company needs to
find ways to improve the overall demand for manufactured industry products or
services performed. Secondly, it needs to protect its market segment through
well-planned defensive and offensive actions. Thirdly, the leader may try to
expand its market share even with the stabilization of its total
volume.leadership is the factor which is most difficult to achieve because it
is the result of both a competitive advantage and effective operation of the
company's management.possession of all the factors mentioned above will allow the
company not only to occupy a leading position in the domestic market but also
to make it a worthy competitor in the international market. However these
factors do not exclude the fact that in order to achieve and increase global
competitiveness the company has to develop a strategy. successfully functioning
company faces the decision what development strategy to choose - strategy of
organic growth or another investment strategy. The company may ensure its
global competitiveness using mergers and acquisitions.and acquisitions is an
instrument of competitive struggle for resources, sales markets, distribution
channels, technologies and know-how. Company’s competitiveness in the world
market directly depends on the effectiveness of applying the external opportunities
to solve the internal strategic tasks. If M&A deal is successful the
company has the ability to increase its market share, have vertical and
horizontal integration, benefit from services of above average management, due
to attraction of new management units and get access to all the assets of the
acquired company. For example, in an industry where there are high barriers to
market entry mergers and acquisitions can bring significant benefits. If a
buyer will make a deal with a leading company in the market with limited
access, the chance to become a leader in this market will be close to the
highest.&A deals have an impact on all the participants of the market
competitive struggle and may lead to the significant changes in doing business
in the definite segment. Such deals are very hard to introduce as they require
accurate estimations and evaluations. Only approximately one third of all the
transactions lead to a significant increase in the value of the company. This
is largely due to an improperly built strategic plan of the company, which can
lead to a number of drawbacks which include overpayment risk, underestimation
of the consequences of the transaction, risk of wrong definition of the object
of purchase, risk of loss of the main managers and experts, etc., today merges
and acquisitions transactions are rather relevant for the business environment
because of the dynamism of markets development and presence of a large number
of competitors. Such competitive struggle leads to high importance of M&A
deals as they allow the company to adapt promptly to changing market conditions
and not to gain competitive advantages. Effective and justified M&As
nowadays help the company to improve its market share and also to win the
leading positions surpassing the rivals.
.2 Definition of Mergers and Acquisitions and their types
and acquisitions is a process of business capital growth
focused on combining two or more companies into a single corporation with a
single governing body. Merging company takes the lead of both companies on
behalf of one. Thus, as a result of restructuring, a larger and more
competitive company appears in the market instead of several smaller
ones.&A is a form of reorganization of enterprises. Typically, companies
use the strategy of mergers and acquisitions in order to increase their
production capacity, to diversify, to expand and to improve the functioning of
activities. The main reason of M&A deal is the fact that the larger the
organization is, the easier it is to compete in the market, avoid bankruptcy,
maintain profitability and ensure global leadership. In other words, two
companies together are more valuable and powerful than the two separate
companies.difference between the terms "merger" and
"acquisition" consists in the method of the union. Merger involves
pooling of resources. That means that merging companies can be considered as
equal companions who decided to unite their efforts in order to increase
strength of their assets, to capture larger market share, to expand consumer
base and to obtain a higher profit. The main purpose of merger is to use assets
of both companies and combine them in order to create a new body, the value of
which is greater than the sum of the two original objects. All the shares of
both companies are reissued after the merger. Mergers are usually voluntary,
and shareholders of both companies retain the same interests in the new
business.for acquisitions, they imply that one company buys another company,
but new company is not created. Acquisition occurs through the purchase of a
controlling stake (more than 50% of shares) of another company. Larger
companies usually acquire smaller ones. In such cases, the company absorbs the
smaller one and proclaims itself as the owner. paribus, from a legal point of
view, the merger is a process of uniting two equal companies into one new unit;
however the acquisition can be defined by termination of the bought company
while the remaining one gets all rights and obligations of the dissolved
company.are two factors that are needed to evaluate the company's growth. The
first is the growth rate (it includes growth rate of income, sales, and
others), the second indicator is the return on invested capital. Analyzing
these two indicators the company decides which path to choose - reinvesting
profits or purchase of another company. In general, it can be said that the
deal of merger or acquisition sometimes gives more benefits than the company
can get by reinvesting its profits, as it gives it the qualitative benefits
such as access to new markets, the expansion of the customer base and other
benefits.are certain types of M&A deals. These types are classified
according to the nature of the companies' integration, national identity of the
merged companies, relation to mergers and acquisitions, method and source of
financing transactions.to the nature of integration mergers and acquisitions
are divided into the following types:
· Horizontal - merges in the same
industry;
· Vertical - merges in different
industries related by technological process of production of the finished
product;
· Generic - merges of companies that
produce related products;
· Conglomerate - merges in different
industries that do not have common suppliers, customers or competitors.
According to the nationality of merged companies M&As are
divided into two types:
· Cross-border - mergers and
acquisitions of companies located in different countries;
· National - mergers and acquisitions
of companies within the same state.
According to the relationship of management to the deal
friendly and hostile mergers and acquisitions are distinguished.
During friendly merger (acquisition) management and
shareholders of the acquired companies support this deal, and in some cases
seek it. Conversely, during hostile takeover (merger) the deal takes place
despite the opposition from senior staff or shareholders of the acquired
company.are different methods of financing. Mergers and acquisitions can be
carried out in cash, exchange of shares or both.sources include debt financing
(credits, bonds, promissory notes), which are called Leveraged buyouts (LBOs).
Usually, the ratio between debt and assets is 90% to 10%. Existing managers can
also buy a controlling stake in the company (Managerial buyouts, MBOs). Such
method is mostly often used when a company is in an economically weak position
and the owners refuse to fund it further. In most cases MBOs occur due to the
third parties, banks or private equity funds, because management usually does not
have sufficient funds to redeem the share of their company. Management Buy-in
is more likely to occur when the company is bought out by external managers,
who later become the new leaders of this company.to the international
consulting firm AT Kearney in 2014 there was a global M&A market downturn.
The number of transactions in developed countries fell by 16% however the
number of M&A transactions in developing countries grew. The developed
countries with the highest number of transactions are still the United States,
Great Britain and Canada. Among developing are China, Malaysia and India. As
for the Russian M&A market, the number of M&A deals has not yet reached
the pre-crisis level but is broadly in line with world trends, with the proviso
that the Russian mergers are mostly internal transactions.
.3 Motives and drawbacks of M&A Deals
main purpose of M&A deals is to improve the financial
position of the company. However, there are many theories that prove mergers
and acquisitions to be not only helpful when the company wants to increase its
financial benefits and global competitiveness, but also they can be completely
destructive to the company. The success or failure depends on many factors, for
example, the motives of mergers and acquisitions.of mergers and acquisitions
are traditionally divided into three main theories:
• synergetic theory;
• theory of free cash flow;
• theory of managers’ hubris.
The main point of the synergetic theory lies in the motive of
increasing the value of associated companies using the opportunities arising
after merging (R. Brealey, S. Meyers, John. C. Van Horne). Synergetic effect
has various forms which become the motives for M&A deals.business, synergy
means benefits from joint activities of several enterprises (companies) in
comparison with their disparate activities. Another definition gives A. Damodaran:
"Synergy refers to the potential additional value from combining two
firms”.effects occur as a result of disintegration processes after the
elimination of inefficient units. According to this theory, when considering
the kinds of synergies, the following effects are determined: the operational,
financial and management synergies.can be achieved through the economies of
scale, the increase of the Price/Profit multiplier, the lower price of debt
servicing, the empowerment of debt financing, the quality control, the improve
of the competitive position and others.theory of free cash flows (Michael C.
Jensen) assumes the existence of the agency conflicts in corporation and the
related inefficiency of managers’ activity. It defines free cash flows as cash
flow after financing all the effective investment projects (with the positive
net specified value). According to the theory, managers, working in interests
of shareholders, have to pay these cash flows to the existing shareholders in
the form of dividends. However, in reality managers have no motivation for such
actions. Therefore they are inclined to invest free money in inefficient
investment projects, for example, merges or acquisitions. This theory helps to
understand how merges reflect the conflict between managers and shareholders,
and also reflect the method of conflict resolution - repayment by debt
financing.third theory is the theory of hubris and personal motives of the
management. So, the theories of hubris (R. Roll, 1986), risk diversification
(Y. Amihud and B. Lev, 1981), reputation (David S. Scharfstein and Jeremy C.
Stein, 1990), herding (A. Devenow and I. Welch, 1996), entrenchment (A.
Shleifer and Robert W. Vishny, 1989) and empire-building (C. Mueller, 1969,
Stephen A. Rhoades, 1983) claim that the majority of transactions of merges and
acquisitions are based on personal interests of management which seeks to
increase their power and recognition. They seek to establish a new super
company which will become the world market leader thanks to their contribution.
Also they claim to greater compensation whereas power and wages limits depend
on the size of the corporation.when the merger doesn't bear any synergetic
benefits, the decision is positive because management considers only their own
assessment of the company and assumes that the market underestimates its
competitive advantages. That is why the theory carries the name of the theory
of hubris as in the absence of economic benefits from merges the decision on
purchase of the company can be made only under the influence of subjective
decisions of the managers considering that only they know all the prospects of
the company.time to time M&As are carried out with the aim to create an
illusion of prosperity in the eyes of shareholders. For example, the wave of
mergers and acquisitions in the U.S. banking industry in the 80s is partly
explained by the desire of managers to demonstrate good performance (growth in
share price, turnover and capital). Typically, in such situations, the
decisions tend to be unsuccessful which finally reveals a few years after the
takeover.two last theories explain motives that can lead to unsuccessful
M&A deals., there are other important motives for mergers or acquisitions,
which make them particularly attractive among large companies. The main motives
of M&As include the following ones,:
· Growth of the company;
· Economies of scale;
· Economy of scope;
· Vertical integration;
· Combining complementary resources;
· Tax motives;
· Geographical diversification;
· Resource transfer;
· Business diversification;
· Elimination of competitors (monopoly
motif);
· Protection motives;
Possible drawbacks of mergers and acquisitions include:
· possibility of incorrect
determination of business attractiveness;
· high risk in case of an incorrect
assessment of the company (exceeded cost of acquisition of the asset,
additional investments);
· incomplete or inaccurate information
on the object (wrong choice of strategy);
· increase of the cost of capital
maintenance (the risk of synergy loss);
· reduction of the company’s
creditworthiness in response to the expansion of the business and the
uncertainty of the results of post integration processes;
· difficulty of integrating the
companies, especially if they are in a different, unfamiliar to each other
areas (increased integration costs);
· possible problems with the staff of
the bought company after the implementation of the transaction;
· differences in the qualifications of
management team;
· the possibility of incompatibility of
cultures of the two companies, especially in cross-border acquisitions;
· loss of customer loyalty or their
outflow in post-completion period.
Despite all the disadvantages the number of M&A deals
today is growing very fast. Cross-border mergers and acquisitions are very
important for business development, especially if the company is striving to
become a world leader. First of all, taking into consideration all the
theories, motives and drawbacks of M&As the strategy of mergers and
acquisitions has to be carried for the purpose of creation and receiving new
opportunities (competitive advantages) which are called the synergetic effects.
They help the acquiring company to be more effective, increase demand and
profitability. Synergetic effects result from realization of M&A strategy
in various functional fields of activity of the company: organizational,
production, commercial, financial, innovative, investment, speculative and the
other ones that lead to growth of the company’s investment cost.
Secondly, the growth of the global competitiveness level in
most business spheres force companies to integrate with each other. Thereby the
company, which uses the strategy of M&A deals and gets the synergetic
effects gets stronger and receives a high chance to become a market leader
while increasing its global competitiveness.
2.
M&A Deals of The Walt Disney Company and Their Role in Increasing the
Company’s Global Competitiveness
2.1 The Walt Disney Company, its Activity and Main Rivals
Walt Disney Company (TWDC, NYSE - DIS), the world’s leader of
the show business industry, was founded in 1923 by Walter and Roy Disney as a
small animation studio. The first and the only direction of business until 1955
of The Walt Disney Company was cinema. However, today, the company is the owner
of 11 thematic parks and two aqua parks, several networks of TV and radio
broadcasting studios, including American ABC. Moreover Disney is the largest
publisher of children's literature in the world. TWDC heads the list of
distributors of video, DVD and Blu-ray production in Europe and Latin America.
The video collection of TWDC totals in more than 3 thousand movies.company is
active in 172 countries and represents 1300 radio and television channels broadcasting
in 53 languages. The headquarters and the main capacities of The Walt Disney
Company are concentrated in the division of the Walt Disney Studios in Burbank,
California, USA.activity of The Walt Disney Company covers a large number of
units and segments.Walt Disney Studios, which includes:
· Walt Disney Pictures
· Disney Nature
· Marvel Studios
· Lucasfilm
· Touchstone Pictures (not under the
“Disney” brand)
Film
distribution
· WDSSPR (Walt Disney Studios Sony
Pictures Releasing)
· BVSPR (Buena Vista Sony Pictures
Releasing)
Sound
recording labels
· Buena Vista Music Group
· Walt Disney Records
· Mammoth Records
· Lyric Street Records
· Hollywood Records
· Skywalker Sound
Theater
· Walt Disney Theatrical
· Hyperion Theatrical (не под брендом «Disney»)
Animation
· Walt Disney Animation Studios
· Disney Television Animation
· DisneyToon Studios
· Pixar Animation Studios
Parks and
Resorts
Besides thematic parks and resorts (Walt Disney Parks and
Resorts, Disneyland Resort, Walt Disney World Resort, Tokyo Disney Resort,
Disneyland Paris, Euro Disney S.C.A., Hong Kong Disneyland Resort, Disney
Vacation Club and Disney Cruise Line), this division includes Disney Regional
Entertainment (which possesses a network of sports restaurants ESPN Zone), Walt
Disney Imagineering and Walt Disney Creative Entertainment.
Disney
Consumer Products
· Disney Publishing Worldwide
· Disney Store
· Jim Henson’s Muppets
· Buena Vista Games
· Disney baby
Media
Networks,
including:for children
· Disney Channel
· Disney XD
· Disney Cinemagic
· Disney Junior
TV
and radio broadcasting networks
· Disney Television Animation
· Touchstone Television
· ABC Entertainment
· ABC Television Network
· Buena Vista Television
· ESPN
· SOAPnet
· Lifetime Television
TWDC owns a number of networks of a cable television,
including Disney Channel, ABC Family, Toon Disney, a network of ESPN and
SOAPnet channels. Disney has an essential share of Lifetime Television stocks
(50%), A&E Network (37.5%), E! (40%) and Jetix Europe N.V. (100%).the ABC
The Walt Disney Company controls over 10 local television stations, 26 local
radio stations, and also ESPN Radio and Radio Disney. Buena Vista Television
prepares for air such television shows as "Who Wants to Be a
Millionaire", "Live with Regis and Kelly" and "Ebert &
Roeper".
Disney
Interactive
· Disney Internet
· Disney Mobile apps
· Disney Social Media
· Disney Virtual Worlds
· Disney Computer Games
TWSC owns the Hyperion publishing company, Internet division
of Walt Disney Internet Group (WDIG) which possesses the Go.com, Disney.com,
ESPN.com, ABCNews.com and Movies.com websites.2009 the creation of new division
of Disney Double Dare You was declared. The new division operates in production
of horror films within the family cinema.1931 a festival of animated films took
place in Moscow, and then TWDC appeared in Russia for the first time. In 2006,
the Russian office of The Walt Disney Company was opened. Today, in Russia and
in the CIS countries the company develops production and distribution of
movies, scenic statements, release of licensed DVDs, Blu-ray and Blu-ray 3D
disks, production and distribution of television content, the Disney Channel
(since October, 2011), licensing of consumer goods, publishing licensing,
production and distribution of digital video, games for consoles, mobile and
online games, and also develops such tourist directions such as cruises to
Disney thematic parks among the Russian audience.company is in the top-15 of
the most expensive brands of the world. In the 2014th fiscal year the revenue
of the company was 48, 8 billion US dollars. The Walt Disney Company is
included into the industrial Dow Jones index. Market capitalization in 2013 was
about 122 billion US dollars. Shares of TWDC at the New York Stock Exchange (NYSE)
are now (2014) traded at the price of 86, 27 US dollars.the main competitors of
TWDC used to be Pixar Animation Studios, Marvel Entertainment, Lucasfilm,
Twenty-First Century Fox, Sony Pictures Entertainment, Warner Brothers,
Paramount Pictures, NBC, TouchStone Pictures, DreamWorks and others, however,
Disney chose M&A deals as a way to eliminate its competitors and diversify
its business. Today TWDC’s main competitors are: Viacom Inc., Time Warner Inc.,
Twenty-First Century Fox, CBS, Directiv Group, Inc. and Comcast. of Pixar
Animation Studios in 2006 became a high-profile case. Besides, in August, 2009
The Walt Disney Company bought Marvel Entertainment. Today TWDC possesses over
5 thousand comics’ characters, including Spiderman and Iron Man. In October,
2012 the company published news about the purchase of Lucasfilm together with
the rights for the "Star Wars" production.a result of all the
transactions the revenues increased significantly from $3, 43 billion US
dollars in 2006 to $7, 5 billion US dollars in 2014. For such success The Walt
Disney Company is obliged to its CEO Bob Iger who used M&A deals to solve
the problem of shortage of fresh ideas and technologies.is considered that
M&A deals of the companies working in the entertainment sphere rarely
conduct to any changes in domestic policy. Often such companies continue to be
engaged in former activity, however, they have much wider list of assets. At
the same time market participants still consider that they can choose while
conglomerates get advantages from a variety of their activity.
.2 Competitiveness Growth after M&A Deals of The Walt
Disney Company
the major M&A deals of The Walt Disney Company were very
successful. TWDC got not only higher profits due to the increased variety of
services and new ideas and thereby higher demand, but also raised its chances
to become a complete world leader in the entertainment market. Its global
competitiveness grew significantly. Today The World Disney Company is a highly
strong competitor and presents a serious threat to its rivals. So, in 2006 TWDC
acquired Pixar Animation Studios, in 2009 Disney bought Marvel Entertainment,
and in 2012 purchased Lucasfilm. The first two transactions have already proved
the efficiency and success, considerably having increased level of income. The
latter transaction is also expected to be extremely successful and to uplift
The Walt Disney Company to the new level leaving all its competitors far
behind.Walt Disney Company and Pixar Animation Studios was founded in 1979 by George
Lucas. It was called "The Graphics Group" as a computer division of
Lucasfilm. However later he decided to sell this division to Steve Jobs: he
invested more than 50 million US dollars in it. Thereby Pixar Animation Studios
was born.the first years of existence Pixar movies deserved recognition of
Oskar Film Academy; however the company didn't get high profits. Disney
suggested investing in creation of the feature length animated Pixar film,
however, the company refused. Later Pixar’s animated film "Toy Story"
came out with huge success, and Disney understood that they had a
competitor.Bob Iger became the head of TWDC, he managed to agree with Steve
Jobs about the acquisition of Pixar in 2006. Pixar kept all the creative
principles of its business which allowed the company to achieve success. The
Disney’s profits began to increase.terms of the transaction were the following:
on each Pixar share Disney issued 2, 3 shares of its own. That means that one
stock of Pixar was estimated by TWDC at the level of 59, 78 dollars which is 3,
8% higher than its cost at the stock exchange. In total the deal cost 7, 4
billion US dollars. a result Steve Jobs, the CEO of Pixar, became a large
shareholder of Disney and one of the directors of the company. Jobs and the CEO
of Disney Robert Iger emphasized that together they would do their best in
order to make Pixar influence the creative atmosphere of The Walt Disney
Company. The transaction was quite expected by everyone because Disney
co-financed and distributed animated Pixar films, receiving part of their
profits, for the last 12 years. Such projects as "Toy Story",
"Finding Nemo", "Monsters, INC" and "The
Incredibles" were made in cooperation of the two companies. Jobs said that
he completely trusted Iger: "Most of the time that Bob and I have spent
talking about this hasn’t been about economics, it’s been about preserving the
Pixar culture because we all know that that’s the thing that is going to
determine the success here in the long run".leading creative persons of
Pixar Animation Studios got high positions in TWDC in order not to depend on
the high-ranking Disney managers and to have the opportunity to offer their own
fresh ideas. of the main problems of Disney consisted not only in its rather
obsolete technologies but also in its stories and characters which didn't
please public as it was before. TWDC used to work in the old manner without
understanding that such characters as the American Little Mermaid or the
Russian Winnie-the-Pooh are impractical in computer animation. However Pixar
Animation, sensitively feeling market situation, offers modern stories and
mobile heroes organically performing in 3D. Despite shortage of kindness,
touching, charm and romanticism Pixar characters win the hearts of the audience
by their energy and simplicity. By means of Pixar potential TWDC got a real
chance to become the engine of new animation.major advantage of the M&A
deal is the combination of traditions and innovations. Today TWDC and Pixar
Animation Studios endure the peak of their influence on the entertainment
market which seems to be very stable despite the tough competition from the
rivals.Walt Disney Company and Marvel Entertainment Entertainment LLC,
affiliated by The Walt Disney Company since August, 2009, is known around the
world due to a unique set of its fictional heroes created during the last 70
years. The Marvel library consists of more than 8 000 characters, among which
are Spiderman, Iron Man, X-Men, Thor, Hulk and others. The company widely uses
the characters in license business (franchise), in show business (Marvel
Studios and Marvel Animation) and also in publishing projects such as Marvel
Comics.history of Marvel Comics started in 1937. Since then the company was
resold several times, often unsuccessfully. As a result in 1996 it declared
bankruptcy, however, Isaac Perlmutter and Avi Arad, owners of toy producing
company, managed to reorganize the company. They started selling the licenses
for comics’ characters with an emphasis on movies and games. Their idea
consisted in bringing superheroes of Marvel out of the limits of habitual
teenage audience. As a result new beloved by everyone movies appeared such as
X-Men, Spiderman and others.the same time the company continued to sell comics,
having re-write old stories for the new audience. As a result their share in
the market of comics grew to 50% by 2010. Marvel easily agreed on the
transaction of acquisition estimated in $4 billion US dollars. The new movie
"Avengers" won deafening success and brought $1,5 billion US dollars
profit to the company’s new owners.to the terms of the deal, each shareholder
of Marvel Entertainment got 30 dollars in cash and 0,745of stocks of TWDC for
each share of the sold company. As the New York Times writes, the cost of the
acquisition transaction was estimated at the level of 50 US dollars per share.
The total cost of the deal was 4.24 billion US dollars .the
completion of the deal Ike Perlmutter, who works directly with global part of
TWDC business, continued to control assets of Marvel in order to maximize
integration of the Marvel Company.the Filmz.ru portal notes, for audience this
transaction means, mainly, real opportunity to see all the favorite heroes in
one movie. Today the screen rights for "Spiderman" belong to Sony
Entertainment, the rights for "X-Men" and "The Fantastic
Four" belong to Fox Broadcasting Company. Disney expects to accumulate
gradually the rights for all the Marvel heroes. Moreover the audience got a
real chance to see the increased number of characters brought to the large
screen.
"We believe that adding Marvel to Disney’s unique
portfolio of brands provides significant opportunities for long-term growth and
value creation" - the CEO of The Walt Disney Company declared in the
official statement. Moreover Marvel Entertainment representatives believe that
TWDC will become the ideal home for the fantastic list of characters of Marvel.
Besides, according to the management of Marvel, merge with the American film
giant brought the company huge benefits.
"This is an unparalleled opportunity for Marvel to build
upon its vibrant brand and character properties by accessing Disney’s
tremendous global organization and infrastructure around the world” - the head
of Marvel Ike Perlmutter commented on the transaction. Walt Disney Company and
Lucasfilm 2011, during the preparation for opening the attraction constructed
based on "Star wars" movie in Disneyland, Bob Iger met George Lucas
and suggested him to buy Lucasfilm. Having remembered how Iyger managed his
former company Pixar, Lucas agreed on a deal, but under the condition that
there will be one more “Star wars” trilogy. Moreover, Lucas wanted to have the
right to vote in everything connected with the usage of the brand. Iger
insisted on TWDC’s interest. Negotiations lasted for half a year. , according
to the deal concluded on October 26, 2012 The Walt Disney Company bought
Lucasfilm for 4, 05 billion US dollars. Half of this sum Disney paid in cash
and the rest part - for 40 million company’s shares. The media giant got Lucasfilm
with all its divisions (IL&M, Skywalker Sound, etc.) and brands (primarily
the Star Wars brand). The M&A deal was approved by both boards of directors
and also by the only shareholder of Lucasfilm George Lucas.Kennedy was
appointed the president of Lucasfilm and took the role of the brand manager and
executive producer of future "Star Wars" films whereas George Lucas
now acts as the creative consultant. The movie "Star Wars: Episode 7” is
planned for 2015. It is expected that the "Star Wars" saga will
proceed with new movies which will develop the franchise further. According to
the press release on the official Star Wars site, the work on new movies is
already on the go. The correspondent of TF.N reports that new movies should be
expected with an interval of 2-3 years and also there will be something for
television.Lucas considers that it is high time to transfer "Star
wars" to the new generation of film directors: “I’ve always believed that
Star Wars could live beyond me, and I thought it was important to set up the
transition during my lifetime. I'm confident that with Lucasfilm under the
leadership of Kathleen Kennedy, and having a new home within the Disney
organization, Star Wars will certainly live on and flourish for many
generations to come. Disney's reach and experience give Lucasfilm the
opportunity to blaze new trails in film, television, interactive media, theme
parks, live entertainment, and consumer products ".
.3 Contribution of TWDC’s M&A deals to its global
competitiveness
M&A deal concluded by The Walt Disney Company brought it
not only higher revenues and higher demand but also some other unique benefits
such as rights to use characters and themes of acquired companies, advanced
technologies, new ideas and reduced competition. Thereby, TWDC increased
differentiation level which brought it opportunities to branch off in areas
where it hadn’t previously had the capability to do so, higher significance
among competitors and access to new markets both domestically and
internationally. All these factors are moving the company to the new level of
doing business. First of all, M&A deals helped the company to get more
competitive advantages and to get more power in the market. Secondly, these
transactions increased the number of admirers of TWDC and brought it even more
fame than it had. to the Forbes List in 2015 The Walt Disney Company is #84 in
“Global 200” list, #14 in “World’s Most Valuable Brands” list, #33 in “Market
Value” list and got the 2nd place in “Global 2000” list among the
companies in Broadcasting and Cable Industry after the Comcast (#46).
The contribution of each M&A deal in the global
competitiveness of The Walt Disney Company can be evaluated by the criteria
listed in Table 1.TWDC acquired Pixar in early 2006 its market capitalization
was 52.8 billion US dollars (2005). However a year after the acquisition, at
the end of 2006, the market capitalization increased and was 61.02 billion US
dollars.
Table 1. The Features of M&A deals that Influenced the
Global Competitiveness of TWDC
|
Deals
|
Features
|
|
Market
Capitalization (bil. USD)
|
Revenue
|
Net Income
|
General Benefits
to TWDC
|
Service and
Products Diversification
|
Audience
Diversification
|
Management
|
Overall Fame
|
|
TWDC - Pixar
(2006)
|
61.02 (+13%)
|
+3,5%
|
+17,07%
|
Advanced
Technologies (3D), new ideas, mutual promotion, synergy, less competition
|
New cartoons,
computer games, mobile apps, merchandize
|
-
|
Steve Jobs
(former shareholder and one of the directors of TWDC)
|
++
|
|
TWDC - Marvel
(2009)
|
34.79 (-56%)
|
+5,03%
|
+12,05%
|
New ideas,
characters, synergy, less competition
|
Feature films
based on Marvel Comics in 3D, computer games, mobile apps, comics, toys
|
boys, adults
|
Ike Perlmutter
(CEO of Marvel Entertainment)
|
+++
|
|
TWDC - Lucasfilm
(2012)
|
71 (+1%)
|
+6,14%
|
+7,09%
|
Tecnologies,
Acces to Lucasfilms’s audio and visual producing companies (Industrial Light
& Magic and Skywalker Sound )
|
Star Wars,
games, merchandize
|
adults
|
George Lucas
(creative consultant of "Star Wars" film), Cathleen Kennedy (the
president of Lucasfilm and brand manager and executive producer of the future
"Star Wars")
|
+
|
Afterwards in 2008 the company lost its position (-56%)
mostly because of Global Financial Crisis, however, it made a decision to buy
another company (Marvel Entertainment, LLC) in December, 2009. Since then its
market capitalization grew nearly twice from 34,79 billion USD (2009) to 61,00
billion USD (2010). That means that the company's size, as opposed to sales or
total asset figures grew significantly. Acquiring Marvel was one of the leading
factors that helped TWDC to get back and even overcome the pre-crisis market
capitalization level. In October, 2012 when the company acquired Lucasfilm it
managed to move forward even more: from 71 billion USD in 2012 to 94,71 billion
USD in 2013 (25% growth). Today TWDC holds the first place according to its
market capitalization (125,77 billion USD) in the entertainment segment. From
Table 2 it can be seen that after each purchase the market share of TWDC grew
except the time of Global Financial Crisis (2008-2009). The price of TWDC’s
shares grew four times since 2005 (from 27,85 USD as to 3 January, 2005 to 109,24
USD as to 12 May, 2015).
2. Market Capitalization of TWDC (in bil. USD), 2005-2014
|
Year
|
Market
Capitalization
|
Increase
|
|
2005
|
52,80
|
|
|
2006
|
61,02
|
13%
|
|
2007
|
67,26
|
9%
|
|
2008
|
54,10
|
-24%
|
|
2009
|
34,79
|
-56%
|
|
2010
|
61,00
|
43%
|
|
2011
|
70,28
|
13%
|
|
2012
|
71,00
|
1%
|
|
2013
|
94,71
|
25%
|
|
2014
|
125,77
|
25%
|
talking about the revenues, The Walt Disney Company managed
to increase its total revenue by 34,56% after the first acquisition in 2006
(2005 - 31,944 million US dollars, 2014 - 48,813 million US dollars).
1. Market Capitalization of TWDC (in
bil. USD), 2005-2014
largest revenue increase is seen after the Lucasfilm purchase
in 2012 (6,14% growth) while the revenues growth after Pixar and Marvel
acquisition were 3,05% and 5,03% correspondingly. The financial crisis in
2008-2009 badly influenced the company’s revenue and net profit. So, it is
difficult to estimate whether Marvel acquisition was successful in terms of
revenue increase or not. However, since TWDC develops its business in different
segments it faces less risk because of an economic or competitive factor that
lowers the revenue for a single segment and results in more chances to expand
in multiple markets. Today, after the last M&A deal TWDC’s revenue continues
to grow and that is why it can be assumed that mergers and acquisitions have a
positive impact on the company’s activity, giving it the opportunity to benefit
from diversification and synergy.
3. Revenue and Net Income of TWDC (in bil. USD), 2005-2014
|
Year
|
Revenue
|
Net Income
|
|
2005
|
31,944
|
5,137
|
|
2006
|
34,285
|
6,491
|
|
2007
|
35,510
|
7,827
|
|
2008
|
37,843
|
8,445
|
|
2009
|
36,149
|
6,672
|
|
2010
|
38,063
|
7,586
|
|
2011
|
40,893
|
8,825
|
|
2012
|
42,278
|
9,964
|
|
2013
|
45,041
|
10,724
|
|
2014
|
48,813
|
13,005
|
|
|
|
2. Revenue and Net Income of TWDC (in
bil. USD), 2005-2014
Walt Disney Company offers a wide range of goods and services
for all tastes, cultures and ages: movies, shows, themes parks, radio stations
and consumer products. TWDC makes its products really differentiated within its
company and from products from acquired companies. acquisition had a great
impact on TWDC’s diversification. One of the main inputs of Pixar Entertainment
in TWDC is its technologies. Traditionally Disney used to apply hand-drawn
animation which was no longer successful. However, Pixar was involved in
developing digital animation technology, including 3D film production. The
former, sensitively feeling the market situation, offers modern stories and
mobile heroes organically performing in 3D format. Despite shortage of
kindness, touching, charm and romanticism Pixar characters win the hearts of
the audience by their energy and simplicity. important benefit is synergy.
Pixar was always a strong competitor and merging with TWDC was advantageous to
the both companies. First of all, while combining their technologies and ideas
companies can achieve more success in the entertainment market. Their mutual
popularity grew and finally the revenues increased. The Pixar now has the
access to the Disney’s production facilities and Disney can use Pixar
characters in its merchandize and Disneyland parks attractions. TWDC acquired
Marvel Entertainment, Robert Iger stated that “Marvel has done a good job of
understanding its characters and story lines. What was attractive to us about
this deal was that it was about acquiring writers who know these characters and
story lines well”. Moreover, The Walt Disney Company got interested in Marvel
not only because of the great number of potentially profitable heroes but also
because Disney had practically no production focused on boys before: the
company had much more princesses and beauties it in its theme parks, TV
channel, cruise lines, and merchandising segments. Marvel Comics characters are
now a key element in theme parks revenue. Also Marvel brands provided the
company with significant long-term growth and value creation. successful
acquisitions of Pixar Animation Studios and Marvel Entertainment have proven
the company’s ability to nurture strong brands and add their creative content
to its potential and value. These acquisitions have boosted company's growth
opportunities and increased diversification even more than it used to be. With
Marvel, the company can produce movies with new characters that did not belong
to Disney before (Iron Man, Thor, Captain America, etc.); with Pixar, Disney
can take advantage of technological innovations and creativity in the animation
world, which have been helping it to improve the quality of recent animated
films released by the company. Undoubtedly, these acquisitions will continue to
pay off for Disney in the foreseeable future.Lucasfilm gave TWDC the
first-class portfolio of content including one of the greatest family
franchises "Star wars” that will be combined with the unique and
unsurpassed creative ideas of Disney. This transaction will provide the stable
growth and considerable profit for many years.TWDC was buying Lucasfilm it set
the price as 4,1 billion US dollars. The fact that the goodwill was estimated
as practically half of the deal price (2,6 billion US dollars) means that
Disney highly appreciates the value that will be added to the company
afterwards from leveraging Lucasfilm intellectual property across TWDC’s
distribution channels. , Lucasfilm includes Industrial Light & Magic and
Skywalker Sound, which provide visual and audio effects and other
post-production services to the Company and third-party producers. The new
added company’s brand was included primarily in Disney’s Studio Entertainment
and Consumer Products segments increasing the level of diversification of
products, services, audience and business in a whole.Disney’s M&A deals
with Pixar, Marvel and Lucasfilm gave the company great portfolios of content, new
ideas, advanced technologies, audience and brought some incredibly innovative
storytellers to Disney, who managed to expand the company’s creativity in new
directions., the acquisitions of Pixar, Marvel and Lucasfilm gave The Walt
Disney Company not only higher profits and product diversification but also a
skillful management team such as Steve Jobes, who was a large shareholder and
one of the Directors of TWDC, Ike Perlmutter, who remained the CEO of Marvel
Entertainment, George Lucas, creative consultant of "Star Wars" film
and Cathleen Kennedy, the president of Lucasfilm and brand manager and
executive producer of the future "Star Wars" film. All these people
contributed to the new experience for The Walt Disney Company and better integration
of the acquired companies., The Walt Disney Company reached high level of
success by focusing on three strategic leverages that open the limitless
potential of the company: creativity, innovative technology and global
expansion. Since launching this strategy, The Walt Disney Company has delivered
some of the world’s most extraordinary entertainment experiences as well as
significant growth and a total shareholder return of 317%.
3.
M&A Deal as an Instrument that Increases Disney’s Global Competitiveness
3.1 Influence of M&A Transactions on The Walt
Disney’s Company’s Business Segments
year the TWDC becomes stronger in the world entertainment
market. Today, the company occupies one of the leading positions in this
branch. The main competitors in its various segments include such media
conglomerates as Viacom Inc., Time Warner Inc., Twenty-First Century Fox, CBS,
Directiv Group, Inc. and Comcast.many respects the success of The Walt Disney
Company in the market is achieved due to the chosen strategy of merges and
acquisitions. It is said that Pixar, Marvel, and Lucasfilm acquisitions have
“proven the company’s unique ability to nurture strong brands and expand
creative content to its fullest potential and maximum value”. Thus, it is
possible to draw a conclusion that M&As increased Disney's global
competitiveness both in entertainment market and in all its separate operating
segments.it was already mentioned in Analytical part of the paper, the company
carries out its activity in five segments: Media Networks, Parks and Resorts,
Studio Entertainment, Consumer Products and Interactive Media. Each of these
segments is very important for the company and makes its business more
diversified for Disney's customers. Having considered each segment in
particular, namely its contribution to TWDC’s activity, we will be able to
define how M&A deals affected these segments. Also it will help us to
reveal the weakest segment, which can be strengthened using this type of
transactions.networksNetworks stands out as the largest driver of TWDC’s
performance each year. Since 2005 the revenues in this segment grew 38% and the
operating income increased 62%. In 2014 revenues reflected 4% growth in
comparison to the previous year. All these changes were caused to a high extent
due to the inclusion of Pixar, Marvel and Lucasfilm to The Walt Disney Company
business.
4. Revenues and Operating Income of TWDC by Media Network
Segment (in bil. USD)
|
Year
|
Revenues
|
Operating Income
|
|
2005
|
13,207
|
2,749
|
|
2006
|
14,1
|
3,48
|
|
2007
|
15,046
|
4,285
|
|
2008
|
15,857
|
4,981
|
|
2009
|
16,209
|
4,765
|
|
2010
|
17,162
|
5,132
|
|
2011
|
18,714
|
6,146
|
|
2012
|
19,436
|
6,619
|
|
2013
|
20,356
|
6,818
|
|
2014
|
21,152
|
7,321
|
about competitors in this segment, it should be mentioned,
that Media Network has the greatest number of competitors among all the TWDC’s
segments. They include Directiv Group, Inc. (33,1%), Viacom Inc. (9,85%), Time
Warner (9,67%), CBC Corporation (8,38%) and some others that have minor market
share. TWDC owns 21,74% of the market, which makes it the 2nd in
Media Network segment. and Resortsand Resorts segment play a crucial role in
raising strategic awareness for Disney’s brands and fully engage the audience
around the world.this segment TWDC has ten large competitors worldwide. The
strongest among them are - Merlin Entertainments Group in United Kingdom (15%),
Universal Parks and Resorts (9,6%), OCT Parks China (6,9%) and Six Flags
Entertainment Corp (6,9%). However, Disney’s Parks and Resorts remain the
leader in this segment with 35% market share.
5. Revenues and Operating Income of TWDC by Parks and Resorts
Segment (in bil. USD)
|
Year
|
Revenues
|
Operating Income
|
|
2005
|
9,023
|
1,178
|
|
2006
|
9,925
|
1,534
|
|
2007
|
10,626
|
1,71
|
|
2008
|
11,504
|
1,897
|
|
2009
|
10,667
|
1,418
|
|
2010
|
10,761
|
1,318
|
|
2011
|
11,797
|
1,553
|
|
2012
|
12,92
|
1,902
|
|
2013
|
14,087
|
2,22
|
|
2014
|
15,099
|
2,663
|
and operating income increase from year to year (60% rise in
revenues and 44% rise in operating income since 2005). The tendency is that
positive mostly because of new attractions based on Pixar, Marvel and Lucasfilm
stories which led to park attendance growth and higher occupied room nights at
Walt Disney World Resort and Disneyland Resort. EntertainmentStudio
Entertainment segment remains the main and the leading part of TWDC business
though it is not that profitable as Media Network segment. It provides vivid
and happy ending stories, memorable characters and remarkable worlds that make
Disney one of the best-known hallmarks in the world.2013 The Walt Disney
Animation Studios reclaimed its rightful place among the world’s best studios
in animation, thanks to the continuing creative resurgence that began with the
acquisition of Pixar. The creative lift brought by Pixar is evident not just at
the Disney Animation Studios, but also at Consumer Products and at Parks &
Resorts, where Disney’s characters and stories can be experienced in new and
innovative ways. Pixar illustrates the level of commitment to quality and
creativity The Walt Disney Company strives for. Moreover, Lucasfilm results are
included primarily in Studio Entertainment and Consumer Products segments.
6. Revenues and Operating Income of TWDC by Studio
Entertainment Segment (in bil. USD)
|
Year
|
Revenues
|
Operating Income
|
|
2005
|
7,587
|
207
|
|
2006
|
7,529
|
729
|
|
2007
|
7,491
|
1,201
|
|
2008
|
1,086
|
|
2009
|
6,136
|
175
|
|
2010
|
6,701
|
693
|
|
2011
|
6,351
|
618
|
|
2012
|
5,825
|
722
|
|
2013
|
5,979
|
661
|
|
2014
|
7,278
|
1,549
|
it can be seen from the table, that revenues and operating
income of this segment fluctuated during 2005-2014 years. However, in 2014 the
Studio Entertainment Segment managed to get the highest operating income in
comparison to the other years. The more beloved by everyone films are coming,
the higher the profit is. Today The Walt Disney Company takes the 3rd
place after Time Warner (38,08%) and Twenty-First Century Fox, Inc. (27,48%),
having 18,54% of market share in this segment. Being the 3rd does
not mean that the company does bad, it means that it has strong competitors and
that it has to do its best in order to be the 1st. We anticipate, that at the
end of 2015 after the release of a new episode of Star Wars the situation will
change dramatically. The acquisition of Lucasfilm should become a special
leverage for Disney, which will help it to struggle the rivals, despite the
considerable gap of 8,94% in market share.
Consumer ProductsConsumer Products segment plays a vital role
in the company’s global growth. This segment leverages the company’s
high-quality content, builds powerful franchises and boosts Disney’s influence
in markets around the world. markets Disney, Pixar, Marvel and Lucasfilm themed
products through retail stores operated under the Disney Store name and through
internet sites in North America (214 stores), Western Europe (88 stores) and
Japan(46 stores). For example, Marvel Publishing creates and publishes comic
books and graphic novel collections of comic books in print and digital
formats. Marvel Publishing also licenses the right to publish translated
versions of these comic books, mostly in Europe and Latin America. by the
enormous creativity of Disney, Pixar, Marvel and Lucasfilm, during 2014 Disney
Stores delivered their best performance to date. Disney Consumer Products
delivered revenues of nearly 4 billion USD and operating income of more than
1,3 billion USD.
7. Revenues and Operating Income of TWDC by Consumer Products
Segment (in bil. USD)
|
Year
|
Revenues
|
Operating Income
|
|
2005
|
2,127
|
520
|
|
2006
|
2,193
|
618
|
|
2007
|
2,347
|
631
|
|
2008
|
2,415
|
778
|
|
2009
|
2,425
|
609
|
|
2010
|
2,678
|
677
|
|
2011
|
3,049
|
816
|
|
2012
|
3,252
|
937
|
|
2013
|
3,555
|
1,112
|
|
2014
|
3,985
|
1,356
|
This segment benefits greatly from the franchise building
process, particularly in licensing. Moreover, high revenues come from the
strength of merchandise thanks to Pixar, Marvel and Lucasfilm acquisitions.
main competitors of TWDC in the segment are Mattel, Inc. (38.19%) and Hasbro
Inc. (25,52%). Disney takes the 2nd place with 27,07% of market
share. Both competitors operate only in toy producing segment. That means that
Mattel and Hasbro put all their efforts in toy merchandize, whereas The Walt
Disney Company has four more segments and nevertheless achieved significant
results.Mediasegment is the youngest among TWDC’s segments. It started its
operation in 2008 after the merger of Disney Interactive Studios and the Walt
Disney Internet into a single business unit which is called Disney Interactive
Media Group. Disney heads believe that video gaming is a key growth opportunity
over the next five to seven years as it allows extending the existing
characters and brands and delivering stronger returns from the key franchises.
increase in game sales and subscriptions revenue was driven by an increase of
25% from higher self-published console game revenues due to the fourth quarter
release of Disney Infinity (new video game platform) and 7% due to the inclusion
of Lucasfilm's interactive games business.
8. Revenues and Operating Income of TWDC by Interactive Media
Segment (in bil. USD)
|
Year
|
Revenues
|
Operating Income
|
|
2005
|
−
|
−
|
|
2006
|
−
|
−
|
|
2007
|
−
|
−
|
|
2008
|
719
|
-258
|
|
2009
|
712
|
-295
|
|
2010
|
761
|
-234
|
|
2011
|
982
|
-308
|
|
2012
|
845
|
-216
|
|
2013
|
1,064
|
-87
|
|
2014
|
1,299
|
116
|
results for the video game business fluctuate due to the
timing and performance of video game releases, which are determined by several
factors, including theatrical releases and cable programming broadcasts,
competition, and the timing of holiday periods. Revenues from some of its
online and mobile operations are subject to similar seasonal trends.has a lot
of rivals, which compete with it in production of video games and online sites.
Interactive Media segment has only 5,54% of market share today and has a great
number of competitors. The strongest ones are Microsoft Corporation (13%), Sony
(13%), Activision Blizzard (12%) and Electronic Arts (11%) which operate in
computing and gaming hardware industry. We assume that TWDC should not seek to
become a leader in this segment, but it should undoubtedly improve its
positions in the market greatly., Pixar, Marvel and Lucasfilm are an
outstanding collection of brands that grow stronger every day as new platforms
and new markets provide enormous opportunities for high quality content and
experiences.
3.2 Improving the Weakest Segment of The Walt Disney
Company Using M&A Strategy
's Interactive Media segment is the one with the lowest
market share (5.54%) mostly because of being the youngest (since 2008) among
Disney's business segments and, therefore, the least developed. Moreover, there
are a lot of strong competitors as this segment today is one of the fastest
growing and promising ones. Every year the number of competitors is increasing
due to the development of new technologies. That means that the threat of new
players in the market is high. At the same time the power of suppliers is very
low power because consumers have the possibility to download video games from
many different resources or play online. Also, consumers can buy consoles
(Xbox, PlayStation, Nintendo Wii etc.) with games for every taste. That is why
the customers' power unlike the suppliers' power is extremely
high.strengthening its position in the video game market, Disney will not only
get higher profits, but it will also increase global competitiveness of TWDC's
whole entertainment business.order to develop the segment, Disney Interactive
Media Group (DIMG) should acquire more game studios in order to gain a broader
understanding and experience in the video game industry. For instance,
acquiring Playdom in July 2010 was a step in the right direction because of the
gained experience in the casual games market added to DIMG's gaming portfolio.
TWDC bought Playdom for 763 million USD, which was №3 social game company with
about 42 million monthly players at the time of the acquisition deal. ’s
acquisition of Marvel also granted DIMG access to their wide range of
characters that can attract new customers, especially among the male
population., there are some investments that failed with Disney receiving
minimal benefits from the acquisition. For example, a former subsidiary of
TWDC, Black Rock Studio, was closed down in July 2011 after a year of
functioning. The reason of the failure is inability of a firm to integrate into
the core competencies of the acquirer. Two extremely different game segments
were placed together and this fact caused misfit and created problems, which
prohibited sustainability in the long run. The formation of separate divisions
will thus be necessary for the game development, so that these entities have
the autonomy to decide what is best for them. Implementing this strategy would
allow different approaches to game development while still focusing revenue
generation by producing blockbuster games that are popular among avid gamers.
the whole, the gaming industry is changing rapidly with the emergence of social
and mobile gaming. With huge corporations that have the ability to influence
and change policy in a short period of time, Disney has to adapt to changes in
the competitive landscape by continuing the restructure of the company via
making more profitable acquisitions.examined some Disney's M&A deals in
this segment, we have identified the following criteria, which we will follow
when choosing the right candidate for The Walt Disney Company to buy. The
candidate company should:
- act independently;
- be quoted on the stock exchange market;
do its business in the USA (in order to aviod
post-merger integration difficulties);
be able to provide TWDC with new technologies and
experience;
give access to new market niches;
have positive growth trends (revenue, net profit,
EBITDA etc.)
- have growth potential;
- provide anticipated increase in revenues;
provide anticipated increase in turnover;
provide anticipated growth of segment’s market
share;
provide anticipated growth of stock price of the
company;have selected four companies in Interactive Media segment with
approximately the same market share. In our opinion after their acquisition
TWDC will be able to improve its position in this segment, and, cosiquently,
increase its competitiveness in the whole entertainment market. These companies
are - Nintendo Co., Ltd. (8%), Electronic Arts, Inc. (11%), Activision
Blizzard, Inc. (12%) and Microsoft Co. (13%). After evaluating each of them, we
will choose one company that fits the best for the M&A deal with The Walt
Disney Company. First of all, we will look at each of them and define the
benefits that these companies can bring to TWDC. Then we will use the method of
coefficients (a comparative approach), which is aimed to determine the value of
the companies when compared with similar ones in the same industry. Finally, we
will choose one company and anticipate the synergetic effect of the M&A
transaction. We assume that the result will be positive and will bring The Walt
Disney Company to an increase in global competitiveness.
. General information and benefits for TWDC of each target
company Co., Ltd is a Japanese company, established in September 1889. It
specializes in creating video games and game consoles. The main advantages of
the company are: recognition and popularity of the brand, diversified products,
innovative and easy-to-use products as well as low production costs, which
allows the company to attract consumers from all the economic classes.most
famous console by Nintendo are - Game Boy, Super Nintendo, Game Boy Color,
Nintendo DS, Game Boy Micro, Wii, Nintendo 3DS, Wii mini and Nintendo 2DS.
Among the most famous and beloved gamed produced by Nintendo are - Super Mario,
Sonic, Rayman, Warms and many others.Disney acquires this company, it will be
able to work in a new niche: games on game consoles. As Disney already produces
games for game consoles it will be able to sell both complement products, and
thus increase brand awareness and also receive additional income from the sale
of these consoles.Arts, Inc. is an American corporation that distributes video
games. The company was founded in May 1982 and became one of the first
companies in the gaming industry. The main benefit of Electronic Arts company
is the extensive content library which gives enormous power to the holder of
that content. The company can demand royalty payments for any use of that
content., the most successful products are sports games published under the
label of EA Sports, games based on popular movie licenses, such as Harry Potter
and the series of games such as Need for Speed, FIFA, Medal of Honor, The Sims,
Battlefield and the later games: Burnout and a series of Command &
Conquer.advantage of the Electronic Arts are its subsidiaries, which are quite
large companies with a substantional weight on the video game market: BioWare,
Criterion Games, EA Canada, EA Digital Illusions CE, EA Montreal, EA Tiburon,
Ghost Games, PopCap Games, The Sims Studio and Visceral Games.Blizzard, Inc. -
is the world's largest interactive gaming company that successfully combines
media, technology, and entertainment. It was launched after the merger of
Activisation and Vivendi Games in December 2007. However, in October 2013
Activision Blizzard repurchased its own shares and got a controlling stake,
while the French company Vivendi retained only 83 million units of securities
(12%).most remarkable games made by Activision Bizzard are - Guitar Hero, Call
of Duty, Skylanders, Destiny, World of Warcraft, StarCraft, Diablo and
Hearthstone.main benefits that Activision Blizzard, Inc. will bring to the Walt
Disney Company are the following: highly focused approach (“strive to do a just
a few things, but do them exceptionally well”). Moreover, the company claims
that everything they do has the potential to be a “breakthrough entertainment
experience”. They focus on every piece of capital, talent, innovation, and
energy on executing with the highest degree of excellence. The company’s
specialty is online multiplayer games. In fact, six times in the past ten
yaers, Activision Blizzard has created the biggest game of the year and that
fact means a lot when valuing the potential acquired companies
input.Corporation is one of the largest multinational companies producing
software for all kinds of computers - personal computers, game consoles, PDAs,
mobile phones etc.. It is the developer of the most widely used software
platform - Windows operating systems. Microsoft operates its business in five
segments: Windows & Windows Live Division, Server and Tools, Online
Services Division, Microsoft Business Division, and Entertainment and Devices
Division., the gaming unit (Entertainment and Devices Division) occupies only
one-fifth of the entire company and Microsoft will definitely not sell it to
Disney as this business segment is becoming more and more popular and
profitable today. Therefore, we assume that despite the fact that, for example,
Activision Bizzard, Electrinic Arts and Nintendo have almost the same market
share, Microsoft is a huge corporation that mostly deals with software, which
is not part of Disney's interests. Our primary goal is to improve the position
of Disney's Interactive Media segment in order to improve the position of TWDC
in a whole and thereby to improve its global competitiveness. Therefore, we
assume that Microsoft can be excluded from the list of possible candidates for
takeover by Disney.
. Financial performance of target companies this stage, in
order to create a shorter list of desired companies, we will analyze financial
data of these companies such as net income, revenues, assets, liabilities and
others. On this basis it will be possible to define company (ies), which
definitely do not meet Disney's requirements.
9. Selected Financial Data of Activision Blizzard, Inc. (in
bil. USD)
|
Activision
Blizard
|
2010
|
2011
|
2012
|
2013
|
2014
|
|
Revenue
|
4,447
|
4,755
|
4,856
|
4,583
|
4,408
|
|
Net Income
|
418
|
1,085
|
1,149
|
1,01
|
835
|
|
EBITDA
|
1,014
|
1,77
|
1,579
|
1,692
|
1,529
|
|
Current Assets
|
5,385
|
5,38
|
6,274
|
6,241
|
6,909
|
|
Non-current Assets
|
8,021
|
7,897
|
7,926
|
7,771
|
7,837
|
|
Current Liabilities
|
2,907
|
2,556
|
2,652
|
2,405
|
2,714
|
10. Selected Financial Data of Electronic Arts, Inc. (in bil.
USD)
|
Electronic Arts
|
2010
|
2011
|
2012
|
2013
|
2014
|
|
Revenue
|
3,654
|
3,589
|
4,143
|
3,797
|
3,575
|
|
Net Income
|
-677
|
-276
|
76
|
98
|
8
|
|
EBITDA
|
-494
|
-132
|
254
|
409
|
264
|
|
Current Assets
|
2,585
|
3,032
|
2,609
|
2,325
|
3,138
|
|
Non-current Assets
|
2,061
|
1,896
|
2,882
|
2,745
|
2,578
|
|
Current Liabilities
|
1,574
|
2,001
|
2,12
|
1,917
|
2,39
|
Table 11. Selected Financial Data of Nintendo Co., Ltd. (in
bil. USD)
|
Nintendo
|
2010
|
2011
|
2012
|
2013
|
2014
|
|
Revenue
|
15,473
|
12,424
|
7,854
|
6,705
|
5,587
|
|
Net Income
|
2,519
|
951
|
-524
|
76
|
-227
|
|
EBITDA
|
4,009
|
2,179
|
-301
|
-251
|
-357
|
|
Current Assets
|
17,543
|
17,988
|
13,833
|
12,58
|
10,007
|
|
Non-current Assets
|
1,869
|
2,029
|
2,761
|
2,698
|
2,758
|
|
Current Liabilities
|
4,492
|
4,082
|
1,885
|
2,052
|
1,521
|
According to the analysis of financial performance of
Nintendo, Electronic Arts and Activision Blizzard companies, we can conclude
that the financial results of all the three companies declined in 2014 compared
with the previous years. However, the results of Nintendo have the largest loss
since 2011. The main cause of trouble is its reorientation on the market of
mobile devices. Customers using digital games only occasionally, refuse to buy
specialized devices. They prefer to play games on smartphones and tablets which
provide a desired game at a minimum price. This fact is reflected mainly in
negative net profit and negative index of EBITDA. Moreover, Japanese law
prevents foreign companies from buying out their native companies. is why we
believe that the Nintendo Company is not suitable for the acquisition for
Disney and may be excluded from the list of potential candidates. So now we
will compare only two companies - Activision Blizzard and Electronic Arts. In
order to understand which one of them will satisfy Disney's need in the growth
of its influence in the market of Interactive Media better, we have to consider
market multiples, which are the main indicators in the evaluation of companies
during the M&A deals.
. Comparison of market multiples of target companies order to
make our assumptions more accurate, we calculate the market multiples: market
capitalization/earnings (P/E), market capitalization/revenue (P/S), market
capitalization/cash flow (P/CF) and market capitalization/book value (P/B). These
multipliers will help us to draw conclusions about the value of the company,
weather it is overvalued or undervalued by investors.
12. Valuation Ratios of Activision Blizzard, Inc.
|
Activision Blizard
|
P/E
|
P/S
|
P/CF
|
P/B
|
|
2010
|
36,8
|
3,5
|
11,2
|
1,4
|
|
2011
|
13,1
|
3
|
15
|
1,3
|
|
2012
|
10,3
|
2,4
|
8,8
|
1
|
|
2013
|
18,3
|
4
|
14,6
|
1,9
|
|
2014
|
17,5
|
3,3
|
11,3
|
2
|
|
Industry Avg
|
27
|
4,7
|
|
3,2
|
13. Valuation Ratios of Electronic Arts, Inc.
|
Electronic Arts
|
P/E
|
P/S
|
P/CF
|
P/B
|
|
2010
|
|
1,6
|
16,9
|
2,3
|
|
2011
|
|
1,8
|
28
|
3
|
|
2012
|
26,7
|
1,2
|
12,4
|
2,2
|
|
2013
|
22,88
|
1,9
|
10,7
|
3,5
|
|
2014
|
18,1
|
3,5
|
13,4
|
5,4
|
|
Industry Avg
|
27
|
4,7
|
|
3,2
|
/E stands for Price-Earnings Ratio. It is calculated using
the following formula:
high Price-to-Earnings ratio could mean that investors are
expecting higher earnings growth in the future compared to companies with a
lower P/E ratio. The lower value of the coefficient indicates that profits of
the company are estimated at a lower price than the profit of the company with
a higher coefficient.average P/E ratio is 27, Activision Blizzard’s ratio is
17,5 and Electronic Art’s ratio is 18,1. The ratios are more or less the same
and are much lower than industry’s average, which means that both companies are
undervalued and have a substantial potential for growth. If looking at P/E
trend since 2008 we can say that AB ratio is becoming more stable and it helps
us to make a conclusion that the company has a high potential but it cannot
reach it. Such results can be a good motive for Disney to acquire Activision
Blizzard. Talking about EA it is impossible to say, weather the company has a
good trend or not. In 2010 and 2011 the company had negative net income, and
companies that are losing money do not have a P/E ratio. However, 2012, 2013
and 2014 P/E ratios tend to decline. On the one hand that means that investors
do not expect high earnings growth. On the other hand, the company did not
reach to peak of its growth and has a potential for it. price-to-sales ratio is
a valuation ratio that compares a company’s stock price to its revenues. P/S is
an indicator of the value placed on each dollar of a company’s sales or
revenues. This ratio is most relevant when it is used to compare companies in
the same sector. A low ratio indicates possible undervaluation, while a ratio
that is significantly above the average may suggest overvaluation of a company.
It is assumed that the undervalued stock should be bought whereas the
overvalued one should be sold since their market value must strive for a fair
price.P/S ratio is calculated using the following formula:
with the P/E ratio it can be concluded that both companies
are undervalued because their rates are lower than the industry's average P/S
ratio (4.7), giving them the opportunity to develop. However, this figure is
not far behind the average, that is why we can conclude that they are not junk
companies. However, on the contrary, they are quite promising and are not sold
at an inflated price.P/E ratio is the ratio of stock price to earnings of the
company which means that the lower the ratio is, the higher the company's
revenues are and lower the share price is. Thus, we can conclude that
Activision Blizzard and Electronic Arts have an income that is high enough to
improve their operations, and may be considered as suitable candidates for the
acquisition by TWDC.price-to-cash-flow ratio (P/CF) is an indicator of a
stock’s valuation. If P/CF is very low, it means that the stock is undervalued,
while a higher index means potential overvaluation. The ratio takes into
consideration a stock’s operating cash flow, which adds non-cash earnings such
as depreciation and amortization to net income. It is especially useful for
valuing stocks that have positive cash flow but are not profitable because of
large non-cash charges. is calculated as following:
P/CF ratio has the same trend as P/E and P/S ratios have.
Both companies have more or less the same figures. That means that Activision
Blizzard (11,3) and Electronic Arts (13,4) are again equally undervalued on the
market of video games.P/B ratio is usually used to compare a stock's market
value to its book value and is calculated as following:
lower P/B ratio usually means that the stock is undervalued.
However, it could also mean that something is fundamentally wrong with the
company. This ratio also gives some idea of whether you're paying too much for
what would be left if the company went bankrupt immediately.P/B ratio is the
only indicator where the positions of Activision Blizzard and Electronic Arts
diverge. Given that the average P/B ratio for the video game industry in 2014
is 3,2, Activision Blizzard has undervalued stock (P/B = 2) and Electronic Arts
has overvalued stock (P/B = 5,4). , despite the fact that both companies have
more or less similar figures, when analyzing financial performance and
measuring market multiples, we choose Activision Blizzard for the following
reasons: the main financial indicators of Activision Blizzard have more stable
trend for improvement than the main financial indicators of Electronic Arts.
Also, each valuation ratio for this company shows that it is a little bit
undervalued compared to the market average, which not only enables it to
develop further, but also makes it more attractive due to the possibility to
purchase the company at cheaper stock prices, which soon may rise due to the
increasing demand.
.3 Advantages for The Walt Disney Company after
acquisition of Activision Blizzard, Inc.
order to prove that Activision Blizzard suits to TWDC's
acquisition the best it is needed to make assumptions about the future of the
main financial indicators of The Walt Disney Company after the M&A deal.
Moreover, the value of the combined company has to exceed the separate values
of the acquiring company and the target company on the value of the synergies.
That is why we also need to calculate the synergetic effect in order to prove
that the acquisition satisfies the main motive of all the M&A deals. This
will help to make sure that this is the company that will help to improve the
global competitiveness of The Walt Disney Company not only in the segment of
Interactive Media, but also for the whole company, which is the main objective
of this work.synergy is calculated using the following formula:
= Vab - (Va + Vb) - P - E,
: Vab stands for Value of the joint company after
the M&A deal; Va and Vb - Values of the companies
before the M&A deal; Р - acquisition premium
paid to the acquired company; Е -
expenses incurred during the M&A deal. are three main methods to estimate
the value of the company - comparative, cost and income approaches. A universal
method of an assessment of the company for acquisition is a method of
discounted cash flows (income approach) which we will use to calculate the
values of the companies before the deal. To calculate the value of The Walt
Disney Company after the M&A deal will be used the comparative method,
which consists in determination of the cost of the enterprise by comparison to
similar firms and transactions.calculation the value of the company using a
method of the discounted cash flow the following formula is used:
V is discounted value of the company;
· CF is Cash Flow;
· R is the average interest rate for
all the sources of the company financing;
· i is time period;
· n is the last year of
calculation.Flow is calculated as follows:
,
Investment in Fixed Assets is the difference between
FA of current year and the previous one;
· Investment in Working Capital is the
difference between Net Working Capital of current year and the previous one.
14. Cash Flows of TWDC, 2006-2014 (in bil. USD)
|
Year
|
FA
|
Current Assets
|
Current
Liabilities
|
Net Working
Capital
|
Profit After Tax
|
Depreciation
|
Investment in FA
|
Investment in WC
|
Cash Flow
|
|
2009
|
34.99
|
11.89
|
8.93
|
2.96
|
3.31
|
1.74
|
−
|
−
|
|
2010
|
36.18
|
11. 55
|
11.00
|
0.55
|
3.96
|
1.84
|
1.19
|
(2.41)
|
7.01
|
|
2011
|
35.52
|
13.76
|
12.09
|
1.67
|
4.81
|
1.96
|
(0.67)
|
1.12
|
6.31
|
|
2012
|
38.58
|
13.71
|
12.81
|
0.89
|
5.68
|
2.07
|
3.07
|
(0.77)
|
5.46
|
|
2013
|
41.19
|
14.11
|
11.70
|
2.41
|
6.14
|
2.25
|
2.61
|
1.51
|
4.26
|
|
2014
|
42.26
|
15.18
|
13.29
|
1.88
|
7.50
|
2.37
|
1.07
|
(0.52)
|
9.32
|
15. Cash Flows of Activision Blizzard, Inc., 2006-2014 (in
bil. USD)
|
Year
|
FA
|
Current Assets
|
Current
Liabilities
|
Net Working
Capital
|
Profit After Tax
|
Depreciation
|
Investment in FA
|
Investment in WC
|
Cash Flow
|
|
2009
|
0.36
|
5.33
|
2.51
|
2.82
|
0.11
|
0.63
|
−
|
−
|
−
|
|
2010
|
0.50
|
5.38
|
2.91
|
2.47
|
0.42
|
0.52
|
0.14
|
(0.35)
|
1.15
|
|
2011
|
0.53
|
5.38
|
2.56
|
2.82
|
1.09
|
0.44
|
0.03
|
0.35
|
1.14
|
|
2012
|
0.51
|
6.27
|
2.65
|
3.62
|
1.15
|
0.33
|
(0.002)
|
0.79
|
0.70
|
|
2013
|
0.51
|
6.24
|
2.41
|
3.84
|
1.01
|
0.32
|
(0.003)
|
0.21
|
1.12
|
|
2014
|
0.50
|
6.91
|
2.71
|
4.20
|
0.84
|
0.35
|
(0.009)
|
0.36
|
0.84
|
discount rate represents the profitability level to which the
investor would agree, making the decision on an investment in a specific
project (company). The higher the level of risk is the higher the standard of
profitability the investor demands. In this regard calculation of a rate of
discount consists in an assessment of the risks connected with an investment of
money in a concrete asset.are various methods and models of definition a
discount rate of a cash flow:
• model, according to capital assets evaluation (CAPM -
Capital Asset Pricing Model);
• method of cumulative construction;
• model of the average cost of the capital (WACC - Weighted
Average Cost Capital).of a discount rate according to the model of the average
cost of the capital (WACC model), which we chose, is carried out using the
formula:
= kd (1 - tc) wd + kp wp
+ ksws,
where kd - cost of attraction of the loan capital;
• tc - income tax rate of the company;
• wd - share of the loan capital in structure of the capital
of the company;
• wp - share of preference shares in structure of the capital
of the company;
• ws - share of common stocks in structure of the capital of
the company;
• kp - cost of attraction of the share capital (preference
shares);
• ks - cost of attraction of the share capital (common
stocks)., the discount rate (R) for TWDC is 10.86% and 10.86% for Activision
Blizzard Inc. the calculation of the value of the company using a method of the
discounted cash flows there is a need for determination of the residual cost of
business in the period following after predicted one, which is based on the
prerequisite that the company is capable to bring income after termination of
the last period.residual cost of the company can be calculated according to
Gordon's model:
Where 
-
residual value of the company;
-
income cash flow for the first year after the forecast (residual) period;
R - discount rate;- long-term growth rates of the company.
The Gordon's model helps to capitalize the revenue after a
forecasted period and the cost indexes by means of the coefficient of
capitalization, which is calculated as a difference between a discount rate and
long-term growth rates.
g(DIS) = 100 × (Total
capital, fair value0 × WACC - FCFF0)
÷ (Total capital, fair value0 + FCFF0)
= 100 × (59.798 × 16.51% - 5.818) ÷ (59.798 + 5.818) = 6,18%(ATVI)
= 100 × (Total capital, fair value0
× WACC - FCFF0) ÷ (Total
capital, fair value0 + FCFF0) = 100 ×
(11,557 × 11.55% - 1.078) ÷ (11.557 + 1.078) = 2.03%
Total capital, fair value0 = current fair value of company’s
debt and equity (bil. USD);
· FCFF0 = last year company’s free cash
flow to the firm (bil. USD),
calculated as:
· r is marginal tax rate for the
company;
· WACC = weighted average cost of
company’s capital.
Thus, the residual value of The Walt Disney Company in 2014
is 111.61 billion US dollars and the residual value of Activision Blizzard Inc.
is 4.08 billion. US dollars., we will calculate the values of both companies using
the method of the discounted cash flow:
16. Value of TWDC and Activision Blizzard, Inc. in 2014 (in
bil. USD)
order to calculate the anticipated value of The Walt Disney
Company after the acquisition of Activision Blizzard we took three M&A
deals, which, according to our point of view, are comparable with the examined
one : Sony Corp. and Evolution Studios (2007), TWDC and Playdom (2010) and
Microsoft Corp. and Press Play (2012). All the three M&A deals were
selected according to the following requirements:
· All the deals should be comparable
with Disney’s deal;
· The acquiring company should be
comparable to TWDC in its size, market share and revenues;
· The acquiring company should have an
Interactive Media segment;
· The acquired companies should be
promising video game companies with significant market share in video game
industry;
· All the companies have to be traded
on the stock market.the financial data was taken from the companies’ Financial
Reports and values were calculated according the DCF method, observed
previously when the values of the Walt Disney Company and Activision Blizzard,
Inc. were calculated.
17. The Results of M&A Deal between Sony Corp. and
Evolution Studios (in bil. USD)
|
Sony Corporation
-Evolution Studios (2007)
|
Before
Ascuisition (2006)
|
After
Ascuisition (2008)
|
Margin (%)
|
|
Revenue
|
63.5
|
88.7
|
28%
|
|
Net Income
|
0.94
|
2.69
|
65%
|
|
Value
|
83.31
|
12.87
|
35%
|
18. The Results of M&A Deal between TWDC and Playdom (in
bil. USD)
|
TWDC - Playdom
(2010)
|
Before
Ascuisition (2009)
|
After
Ascuisition (2011)
|
Margin (%)
|
|
Revenue
|
36.1
|
40.9
|
12%
|
|
Net Income
|
3.31
|
4.81
|
31%
|
|
Value
|
25.56
|
42.39
|
40%
|
observing the revenues, net incomes and value of the
acquiring companies before and after M&A deals (year before and year after
the deal) the average margin was calculated.19. The Results of M&A Deal
between Microsoft Corp. and Press Play (in bil. USD)
|
Microsoft
Corporation - Press Play (2012)
|
Before
Ascuisition (2011)
|
After
Ascuisition (2013)
|
Margin (%)
|
|
Revenue
|
69.94
|
77.85
|
10%
|
|
Net Income
|
23.15
|
21.86
|
-6%
|
|
Value
|
187.14
|
193.66
|
3%
|
20. The Average Margin in Revenue, Net Income and Value of
the Acquiring Companies a Year after the Deal (%)
|
|
Average Margin
|
|
Revenue
|
20%
|
|
Net Income
|
28%
|
|
Value
|
26%
|
, we applied this correction to The Walt Disney Company and
got the anticipated value of the company after the acquisition of Activision
Blizzard Inc. and calculated the synergetic effect after the acquisition,
taking into consideration the anticipated premium and anticipated expenses on
the deal. calculate the premium for the M&A deal we will use the premium
which selected the Vivendi Games Company upon purchase of a controlling stake
of Activision Blizzard in 2007. That is the current stock price of the company
plus 24% . As of May 15, 2015 the price of one share of Activision Blizzard
Inc. is 25.42 US dollars. Thus, if Disney wants to became the holder of a
controlling stake of the acquired company (we will assume that it will be 52%
of AB shares), it will pay a premium of 2,3 billion US dollars from a total
cost of the transaction which according to our calculations will make 11,9
billion US dollars.
In accordance with EY Company’s report, the average
value of expenses on integration of business after M&A deal completion is
14% from the total cost of the deal. That is why we assume that integration
expenses will be 1.67 billion US dollars.
21. Synergetic Effect for TWDC after M&A Deal with
Activision Blizzard (in bil. USD)
|
TWDC (2014)
|
Activision
Blizzard (2014)
|
TWDC +
Activision Blizzard
|
TWDC +
Activision Blizzard (M&A)
|
Premium
|
Expenses
|
Synergy
|
|
Revenue
|
48.81
|
4.41
|
53.22
|
58.58
|
|
|
|
|
Net Income
|
13.01
|
835
|
848.01
|
16.65
|
|
|
|
|
Value
|
89.59
|
6.11
|
95.70
|
112.88
|
2.3
|
1.67
|
25.43
|
all the calculations the estimated revenue will make 58.58
billion US dollars, 17% greater than the revenue in 2014, and the anticipated
net income will compose 16.65 billion US dollars, which is 22% more than in
2014. The synergetic effect turned out to be 25.43 billion US dollars, which is
a very good result. Thus, we proved that Activision Blizzard Inc. suits for
TWDC’s acquisition and is able to increase the global competitiveness of The
Walt Disney Company in the entertainment market. to the nature of integration
this M&A deal will be considered as horizontal, according to the
nationality of merged companies it will be a national deal and according to the
relationship between management the deal will be a friendly one.sum up, we are
quite sure that the M&A deal between The Walt Disney Company and Activision
Blizzard Inc. will bring not only economic benefits to Disney such as income
growth, but also will give it new technologies, experience and increase its
share in the video game market. Having increased its share in this market, TWDC
will be able to increase the influence in the whole entertainment market and
respectively will manage to increase its global competitiveness. Thus, The Walt
Disney Company will become an even stronger player in the entertainment market,
having overtaken its main competitors.
Conclusion
there has been a significant increase in number and volumes
of mergers and acquisitions transactions in the whole world including Russia.
Integration processes change structurally, high number of regions is involved
in them, and scales of international transactions extend. For business
community these processes have clear logic as they assume obvious economic
motivation: expansion of sales markets, production synergy, financial benefits,
which are factors conducting to increase in cost of equity and increase in
influence of the company in the market in which it functions., not all the
M&A deals are successful and bring benefits to the acquiring company, there
is a number of deals that prove that if a company uses correct and rational
evaluation of future transaction, namely valuation of the target company and
future economic benefits, M&A deal can considerably improve the competitive
position of the company as, for example, it was made by The Walt Disney
Company.competitiveness is the ability of companies to compete in international
markets and M&A deals are a good instrument that is able to improve its
position in the market where the company functions and to overcome its global
competitors. Using the example of The Walt Disney Company we proved that
availability of competitive advantage, above-average management and market
leadership plus properly prepared and implemented M&A deal may result in
the increase of company’s global competitiveness and its influence in the
market.had three high-profile M&A deals and each of them was extremely
successful and brought a number of significant advantages to the company.
Moreover, these deals helped Disney to increase its global competitiveness and
increase its market share in each segment the company operates in. Apart from
positive economic results, such as revenue, profit and share price growth, The
Walt Disney Company managed to diversify its business, attracted new audience,
got new skilled managers and increased its influence in the entertainment
market. However, today Disney is not the unambiguous leader in four of five
segments in which it operates. We suggested improving the weakest and newest
segment, Interactive Media, which in our opinion can play an important role in
successful activity of the company and will be able to increase its global
competitiveness considerably. This segment does not occupy even the tithe of
the Interactive Media market but it is very perspective because of general
addiction to video games both online and on game consoles and phones.is
important to notice that the main competitors of The Walt Disney Company,
Viacom, Time Warner Inc., Twenty-First Century Fox, CBS, Directiv Group, Inc.
and Comcast, also have quite poorly developed Interactive Media segment.
Therefore if Disney starts acting now and will redeem the main companies that
produce video games, it won't leave any chance to its competitors and will be
able to compete with the companies for which this activity is the main
one.proved that Activision Blizzard Inc. suits well for M&A transaction
with Disney as it is capable to bring significant benefits to the company such
as synergetic effect, which is the most important motive when a company choses
M&As as a method of integration. The synergy is a result, which each
company seeks to reach in order to enter the world market and to take the
leading positions in it. So, having estimated the synergy, we made a conclusion
that this effect is possible to be obtained and it is quite big. Also, using
the identical transactions in this branch, we estimated that in a year the
revenue of the company has to grow by 20%, the net income has to increase by
28% and the value of The Walt Disney Company has to extend by 26%.main strength
of Activision Blizzard Inc. is that the company is very influential in its
segment of the world market and in each region. Activision Blizzard’s positions
are very strong in the Asian countries where Starcraft and World of Warcraft
games became super - hits. Moreover, AB creates console games for Microsoft
Xbox 360, Sony PlayStation 3 and Nintendo Wii, which are traditionally popular
in Europe and the USA., the hypothesis of this paper (Disney Conglomerate uses
the strategy of M&As successfully, which helps it to increase significantly
its global competitiveness in the entertainment market) is approved. The main
goal, which is identification of Disney’s M&A deals’ input in the company’s
global competitiveness and making suggestions on making the company the world
leader in entertainment market using M&A deals, is reached. Walt Disney
Company has to continue to win the entertainment market using mergers and
acquisitions transactions and then it will increase its global competitiveness
even more and will get the real chance to become the leader in each segment of
its activity.
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