Disnye Marvel Acquisition

Topics: The Walt Disney Company, Value investing, Marvel Entertainment Pages: 11 (4153 words) Published: October 26, 2011
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October 10 2011 17:36

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Disney's Marvel acquisition: a strategic financial analysis
Calandro, Joseph. Strategy & Leadership38.2 (2010): 42-51.

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Abstract
The purpose of this paper is to assess the value and risks of Disney's 2009 $4 billion acquisition of the Marvel Entertainment Group (Marvel) in a case study utilizing the modern Graham and Dodd valuation approach. The paper presents a detailed valuation of Marvel in 2009 drawing on previously published Graham and Dodd methodological materials and Marvel's publicly available financial reports. Disney's $4 billion acquisition price for Marvel contained considerable risks based on certain valuation assumptions, which were identified in the context of our analysis. This acquisition is a useful one for executives to study because it involves a situation many of them could face: evaluating the purchase of a great company that is seemingly a strategic fit and offered at what appears to be a reasonable price. Assessing such opportunities utilizing the modern Graham and Dodd valuation approach facilitates greater levels of insight into key assumptions, value drivers, and risks. This is a methodology that has proved useful to successful value investors over time. Lessons executives in many industries can learn from a Graham and Dodd-based valuation of the 2009 Disney acquisition of Marvel include: better risk assessment, valuation of entertainment property assets and franchise assessment.

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Full Text
On August 31, 2009, Disney announced its acquisition of Marvel Entertainment, Inc. for $4 billion, which was approximately 29 percent greater than Marvel's market value at the time.[1] Coincidently, this journal had recently published an article on lessons that could be learned from Marvel's well publicized 1996 bankruptcy.[2] That article recounted how the company emerged from bankruptcy when a controlling interest, about 37 percent of Marvel, was acquired by its current management for just $238 million in 1998.[3] Now, with Disney's acquisition, the value of that investment grew to $1.5 billion, which equates to an impressive 20.2 percent compounded return.[4], [5] Clearly, Disney's acquisition was a stunning success for Marvel's top shareholder, but will it be a success for Disney? Currently, acquisitions are generally priced using one of three popular approaches. Each involves significant assumptions:

Discounted cash flow- assumes that reasonable estimates of future cash flows can be made in the present. Multiple-based valuation- derives a price based on some financial variable such as revenue or book value and assumes that one compound of one variable accurately represents a firm's value. Comparables- assume that the value of similar firms serves as a reasonable proxy for the value of a firm at interest, and also that the proxy firms were valued appropriately. Each of these approaches also tends to be divorced from strategy. For example, rarely are specific risks linked to a valuation. Instead, they tend to be embedded in a discount rate estimate. As another example, growth tends to be modeled on very broad assumptions that rarely tie back to specific strategic plans and performance measures. Drawbacks such as these could contribute to the failure of many past deals.[6] As an alternative approach, the modern Graham and Dodd method, which is employed by outstandingly successful investors like Warren Buffett, considers valuation differently. First, it addresses key...
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