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Disney V DreamWorks Showdown


Comcast preps for Disney clash.

Apple partners with SAP.

Apollo Ed owners vote: $10 or <$10?

Welcome to the G-Rated issue of M&A Daily


Disney (NYSE:DIS) has underperformed SeaWorld (NYSE:SEAS) by about 10% since last August.

Disney's new Star Wars movie was a triumph and SeaWorld's Killer Whale PR was a nightmare; both were overly priced into their respective stock prices.

Competitor Comcast (NASDAQ:CMCSA) is buying DreamWorks (NASDAQ:DWA) for $41 per share in cash, a huge premium to the target's pre-deal price; it had traded in the mid-twenties before news of the deal reached the market and for most of the past year. Today, the $1.15 arb spread offers a 5% IRR if the deal closes by yearend.

Why buy? Comcast is following the Disney playbook in order to better compete against Disney. Disney owns ABC and Marvel movie studios; Comcast owns NBC and Universal Studios (home of both Fast and furious and Pitch Perfect). With the deal, both Comcast and Disney each will have two animation studies. Disney has both Disney and Pixar while Comcast will have both Illumination (Minions, Despicable Me) and DreamWorks.

The big deal rationale is in building theme parks. One builds theme parks with family movie franchises. Disney has their movies (Pixar movies, Frozen line) and puts them into parks. Now Comcast has DreamWorks (Kung Fu Panda, Shrek) and Illumination Studios and can put those into their parks. Comcast is currently building a Chinese theme park. Kung Fu Panda and How to Train your Dragon are huge hits in China and their addition will greatly improve the new park. On top of the theme parks, there should be plenty of other deal benefits. For example, Universal can handle DreamWorks movie distribution and marketing.

Comcast will be able to cut a lot of costs out of DreamWorks. It was run by movie mogul Jeff Katzenberg. Despite being a small company, it was run like a major movie studio with its own lots and palatial offices. Katzenberg is a creative genius who knows he is a creative genius. He treated himself pretty lavishly on DreamWorks' dime. Substantial costs can be cut in order to make back the premium that Comcast shareholders paid. If you want to learn more about DreamWorks, then I highly recommend reading The Men Who Would Be King: An Almost Epic Tale of Moguls, Movies, and a Company Called DreamWorks. According to Amazon (NASDAQ:AMZN),

DreamWorks-the mega-million-dollar brainchild of Steven Spielberg, Jeffrey Katzenberg, and David Geffen-heralded a new age of entertainment empires when it launched in 1994, and their competitive strategy was fierce. For avid business readers, among others, seeing David Geffen in action as he seduces investors like Microsoft's Paul Allen and takes on CAA's Michael Ovitz is worth the price of admission. Their creative battles cost them untold billions on the way to the box office, but this is no rags-to-riches story: in fact, as they grow DreamWorks into one of the most influential film brands operating today, these rich men get richer, even as the stakes get higher.

How will Disney's M&A team respond? Discovery (NASDAQ:DISCA)? Time Warner (NYSE:TWX)? Electronic Arts (NASDAQ:EA)? Netflix (NASDAQ:NFLX)? A post-Redstone Viacom (VIA/VIAB)? Your move, Disney.


Apple (NASDAQ:AAPL) is partnering with SAP (NYSE:SAP) on iOS apps able to benefit from SAP's Hana database. In the past, Apple has worked with IBM (NYSE:IBM) and Cisco...