Disney's Marvel Acquisition May Not Portend More Media Deals

DOW JONES (New York)--The Walt Disney Co.'s (DIS) agreement to buy Marvel Entertainment Inc. (MVL) raised the prospect of a new wave of mergers and acquisitions hitting the beleaguered media industry after the global financial crisis put a lid on dealmaking last fall.

But the deal was hardly a sign of defensive consolidation in a shrinking industry, which some observers have been waiting to see in media. Disney paid a rich valuation for Marvel - a bet that the deal can yield outsized returns years down the road.

It also displayed Disney's unique financial position and solid track record when it comes to integrating new business and brands into its sprawling portfolio of media and entertainment assets.

"This speaks to the ability of Disney in particular to weather a difficult economic climate and have the economic strength to get a deal done in a climate like this," said Chris Vollmer, lead media and entertainment consultant with Booz & Company. "They've shown through the Pixar acquisition that they can successfully integrate a creatively driven company, and they've shown with ESPN that they can manage other brands effectively."

Disney acquired Pixar Animation in 2006 in a deal valued at $7.4 billion, and it acquired ESPN in 1995 as part of a $19 billion deal for Capital Cities/ABC.

While the Marvel deal reflects Disney's unique strengths, it also shows some renewed confidence in financial markets and economic prospects after the global economic downturn shook investor confidence in an industry that was already struggling to find its footing amid its uncertain transition to digital media.

"This deal says corporate leaders are starting to feel a lot more comfortable given their visibility and ability to finance," said Mario Gabelli, chief executive with GAMCO Investors Inc. and a prolific media investor. "We're seeing the seeds germinate for the next round of M&A activities."

Gabelli noted that a federal court recently tossed out a regulatory rule preventing cable companies from controlling more than 30% of the U.S. market, which could open the door to consolidation among major cable providers.

He also said Liberty Media Corp.'s (LCAPA, LINTA, LMDIA) decision to merge with DirecTV Group Inc. (DTV) opens the door to a possible acquisition of the satellite TV provider by a phone company.

Meanwhile, shares of DreamWorks Animation SKG Inc. (DWA) rose 6.5% Monday, following the Disney-Marvel announcement, on speculation that it could be an acquisition target for the likes of Time Warner Inc. (TWX), which is sitting on a $7 billion cash pile after spinning off its cable arm, Time Warner Cable Inc. (TWC).

A spokesman for Time Warner declined to comment, though the company's executives have long said it will set a high bar for acquisitions given the industry's dismal track record.

Goldman Sachs analyst Ingrid Chung raised her price target on DreamWorks Animation to $38 from $36 following the Disney-Marvel announcement and put the chances of an acquisition of the company at 35%, saying it could be attractive for other large entertainment companies or foreign studios.

Elsewhere, Cox Communications has put its Travel Channel up for sale, with Scripps Networks Interactive Inc. (SNI) and General Electric Corp.'s (GE) NBC Universal reported to be lead contenders. Cable networks generally are named as acquisition candidates, with A&E Television Networks announcing the acquisition of Lifetime Entertainment Services last week.

Video games and social media are also fertile ground for dealmaking in media, while film studios big and small - such as Viacom Inc.'s (VIA) Paramount Pictures and Lions Gate Entertainment Corp. (LGF) - are viewed as ripe for consolidation as the decline in DVD sales weighs on profitability in Hollywood.

Despite all the possibilities, Vollmer said "there's too much uncertainty around key parts of the market for some of the other players to feel that confident about the go-forward prospects for acquisitions."

-By Nat Worden, Dow Jones Newswires; [phone]; [e-mail]