Disney's most recent effort to stop the bleeding shows the firm is starting to get desperate. It could soon fall victim to a hostile takeover -- perhaps from Apple.
On Friday, Walt Disney (NYSE:DIS) announced it would furlough thousands of employees amid coronavirus uncertainty. The move underscores Disney’s precarious position and adds to speculation that Apple (NASDAQ:AAPL) could be considering a takeover bid.
The self-proclaimed “happiest place on earth” had to shutter its parks to comply with lockdown measures, resulting in millions in lost ticket sales. The exact number of park staff affected is still unclear, but it could potentially apply to 177,000 U.S. workers.
While Disney has agreed to continue paying for healthcare benefits and insists the furlough will be a short-term measure, it raises questions as to how much more pain the mouse can take.
Disney’s Parks segment makes up a whopping 37% of the firm’s overall revenue. That’s equivalent to $25 billion each year. If the parks remain shuttered for just one quarter, Disney will likely lose more than $6 billion in unrecoverable revenue.
And that’s just parks. While the introduction of the company’s Disney+ streaming platform was undeniably well-timed, Disney’s media empire is also at risk of crumbling. Production for 2021 projects have halted and the windfall that new releases used to generate is little more than a light breeze.
Disney’s “Onward,” which came out on March 6, grossed just over $100 million—that’s a fifth of the $500 million studio execs had expected. The film cost more than that to make.
Things don’t look much brighter for broadcasting, which will also take a hit despite the thousands of people stuck inside watching TV. That’s due to a lack of content coupled with a pullback in advertising spend. While there’s certainly a captive audience, those people aren’t out spending money.
The cancellation of live sports was a hit to Disney’s ESPN, which has started filling the time with repeat broadcasts and unlikely events like arm-wrestling matches.
There’s no doubt Disney is in a tough spot and will be for some time. Its parks are unlikely to open over the next six months as most agree that social distancing measures need to remain in place until a coronavirus vaccine has been approved. Even if they do reopen, the public will likely be hesitant to visit.
With $38.31 billion worth of long-term debt on its balance sheet and a severe cash-flow problem in the near-term, Disney has become ripe for the picking.
Not many U.S. businesses are in a position to buy right now, but those who can are likely putting a target on Disney’s back.
One potential suitor is Apple, whose infamous $107 billion cash pile hasn’t found a good use just yet. Disney’s market cap has slid to $175 billion, within touching distance for Apple. In the coming weeks DIS stock will probably see an even steeper decline as the impact from its shuttered operations sinks in.
Adding Disney to its empire makes sense for Apple, whose own streaming platform has had a lackluster reception. By contrast, Disney’s impressive catalogue of content saw consumers signing up in droves.
Neither company has made any mention of a possible combination, but desperate times call for desperate measures. It would be shocking if Apple comes out the other side of the coronavirus pandemic without picking up a struggling competitor along the way.
The opinions expressed in this article do not necessarily reflect the views of CCN.com. As of this writing Laura Hoy did not hold any of the aforementioned securities.
Last modified: September 23, 2020 1:48 PM