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  • Apple Buying Disney? Absurd!

    March 4th, 2006

    In this day and age, if a theory is even vaguely possible, someone will provide a credible-sounding reason why it must be so. For example, now that a couple of relatively ineffectual viruses strains are found that can impact Macs, it means that Macs are no longer safe. Forget, for the moment, that there have been viruses on the platform all along, just nowhere near as frequent as on Windows. Whether it’s a matter of superior operating system security, safety by obscurity, or a combination of both, doesn’t matter. That’s how it is, and no operating system is perfect.

    The latest round of intriguing speculation is that Apple might take advantage of its high market cap and the relatively lower valuation of Disney to score a merger. As I write this, Apple rates at over 60 billion dollars, while Disney is listed at less than 55 billion dollars. Piece of cake, right? Of course, things are more complicated than that in the real world, but this is the sort of thing that allowed AOL to take over Time Warner some years ago, and that was soon regarded as one of the worst merger scenarios of recent history.

    No, I’m not saying that Apple and Disney, together, would be a mess or couldn’t possibly work, but does it even make any sense? Lest we forget, Steve Jobs ran Pixar as a separate company. In fact, he took largely a hands-off approach, allowing other executives to manage its day-to-day affairs.

    But now that Steve Jobs is poised to own 7% of Disney’s stock, making him the largest shareholder in the company, speculation mounts about what his next move might be. Can he just sit back and allow others to run the Magic Kingdom and not feel, well, the urge to take it over and merge it with Apple? The question you might ask is how Steve Jobs can run Disney’s vast entertainment empire and, at the same time, give Apple the proper amount of attention? I know some out there think Jobs can perform miracles, but he is, after all, human and he deserves to have a life too.

    Even if we assume that the financial details can be worked out, and that the stockholders of both companies would vote in favor of such a scheme, consider the costs and hassles of merging the two companies? Today, Apple has a stable balance sheet, with plenty of cash in the bank, great profits, rising sales, and all the rest. Would it make sense to risk that on such a maneuver? I suppose one could point to various synergies between Apple and Disney, but consider the pitfalls.

    Today, other entertainment companies are delighted to sell their content on iTunes. Now imagine that Apple and Disney were one. Would, say, NBC want to have its TV shows available on a service that owns a rival network? What about CBS? It would be naive to believe that there wouldn’t be complications.

    Sure, Disney can provide lots of benefit to Apple, by licensing more and more of its content and, perhaps, even licensing its famous characters to adorn special editions of the iPod, or perhaps special editions of some consumer Macs. But all that can be done via contracts between the two companies, without the headaches involved in merging corporate cultures and all the rest.

    Of course, there are lots and lots of other reasons why such a deal would be destined to fail. There’s an article at The Motley Crew that provides very sensible reasons why the two companies should remain separate. More to the point, Steve Jobs has plenty on his plate right now with the transition to Intel processors, the need to continue to boost iPod and Mac sales and all the rest. As a key board member at Disney, he will surely have enough pull to make sure that his point of view is heard and given fair consideration. Two of Pixar’s key executives will be in charge of Disney’s animation division and that should give him plenty of control once the merger with Pixar has concluded.

    This doesn’t mean that Apple shouldn’t be looking for possible opportunities to buy other companies or just acquire technologies that fill its strategic vision. But such deals have to make sense. Taking advantage of a high stock market valuation just to gain control of a larger company that looks cheaper on paper can be an unmitigated disaster. Just ask Time Warner.



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