M&A Case Study : Disney’s Acquisition of Marvel

MA case study Disneys Acquisition of Marvel

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MA case study Disneys Acquisition of Marvel

An Overview of Disney's Acquisition of Marvel

On 31st August 2009, Walt Disney announced it would acquire a 100% stake in Marvel Entertainment for $4.2 billion. This deal was the largest in media that year.  

Disney paid $30 per share in cash plus 0.7452 Disney shares for each Marvel share owned.

According to Reuters, Disney’s Acquisition paid the price with a premium of 29% on Marvel’s closing price the Friday before the announcement. In total, Disney paid $2.4 billion in cash and distributed approximately 59 million shares at $32.25 (amounting to $1.9 billion).

Many media outlets reacted sceptically to the acquisition, with CRA Standard & Poor’s even adjusting Disney’s credit rating to negative.

Perhaps Disney’s Acquisition of Marvel was deemed undesirable in a significantly contracted economy following the subprime mortgage crisis or because the $4.2 billion valuation was 12x Marvel’s EBITDA and 37x their 2009 earnings estimates.  

However, Disney shrugged off the negative press and, in 2019, reported over a 325% return on investment, earning nearly $17 billion to pay back the principal amount.

Even after the Avengers series ended, Disney’s Acquisition of Marvel continued to utilise itself with the release of new stories such as Black Widow, Eternals, Shang-Chi and Venom, alongside the launch of their new streaming platform, Disney+, which would become a major Netflix and Amazon Prime competitor. 

In hindsight, the initially pessimistic media and S&P failed to calculate the synergy that would be gained from Disney’s Acquisition of Marvel.

Below: A video discussing this subject and giving you a clear demonstration on Disney’s Acquisition of Marvel.

A Breakdown of the Purchase Price

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Above: Table displays Disney’s price purchase of Marvels assets and overall business (Source: Disney Annual Report 2010)

Who is Disney?

Disney is a global entertainment company founded in 1923. The Disney business is composed mainly of four parts.

Before Disney’s Acquisition of Marvel, these four parts were Media Network, Direct-To-Consumer & International (DTC&I), Parks and Experiences, and Studio Entertainment: 

  • Media Networks is Disney’s largest business unit, accounting for 40% of Disney’s revenue, consisting of cable and television broadcasting in the United States. 

Cable broadcasts include Disney, ESPN, Freeform, FX, and National Geographic, while television broadcasts include the ABC brand.

  • DTC & I business accounts for about 24% of sales from overseas cable, broadcasting, and streaming businesses.

Cable broadcasting overseas is Disney, ESPN, Fox, National Geographic and Star, while streaming services are Disney+, Disney+ Hotstar, ESPN+ and Hulu

In the UK, Disney+ service started on 24th March 2020.

  • Parks and experiences make up 23% of sales.

It consists of a theme park and resort business, such as Disneyland, and a licensing business. Disneyland and resorts and spas are located in California, France, Paris, Hawaii, Hong Kong, and Tokyo, Japan.

They include experience services such as Disney Cruise Line, Disney Vacation Club, and National Geographic Expeditions derived from them. It also has a licensing business that allows a third party to operate the resort.

  • Studio Entertainment’s film business accounts for about 14% of sales.

They produce and publish films under Disney Pictures, 21st Century Studios, Lucasfilm, Pixar, Searchlight Pictures, Blue Sky Studios, and Marvel brands. 

It also provides post-production services through Industrial Light & Magic and Skywalker Sound. 

Disney Breakdown

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Above: Table display an Overview of The Walt Disney Studios Yahoo Finance, The Walt Disney Company’s annual report 2021)

Who is Marvel?

Marvel Studios is a global entertainment company founded in 1998 and headquartered in New York.

Currently, as a subsidiary of Disney, it is a world-famous company that makes movies based on Marvel Comics comic books.

Marvel characters usually have heroic personalities. Starting with  Blade, X-Men, Spider-Man, Hulk, Fantastic Four, Ghost Rider, Thor, Iron Man, and Venom, it has characters with intense and superhuman characteristics, mainly targeting men.

Marvel also distributes through partnerships with third parties. Spider-Man and Venom were distributed through Sony Pictures, and Hulk through Universal Pictures. It was listed on the New York Stock Exchange before Disney’s Acquisition of Marvel and was delisted after.

Marvel Breakdown

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Above: Table display an Overview of The Marvel Entertainment Company before the Acquisition (Source: Wikipedia, owler.com)

Why did Disney Acquire Marvel?

Before Disney’s Acquisition of Marvel, Disney’s main fandom was young children. Its main characters were Mickey Mouse, Hannah Montana, Cinderella, and Snow White. These characters displayed feminine traits. The characters were also aimed to a younger audience.

On the other hand, the Marvel characters were masculine and dominant, so it had a solid male fandom ranging boys as young as 8 to adults.

  • From Disney’s point of view, Marvel was the object of Disney’s envy. Disney’ Acquisition Marvel was to expand its characters in the areas that Disney lacked. In other words, it is to diversify the product portfolio to broaden the customer base and ultimately increase cash flow.

According to Reuters News, Disney CEO Robert Iger and Marvel CEO Isaac Perlmutter met and, after a series of meetings, developed into merger discussions.

Tom Staggs, Disney’s CFO at the time, told Reuters that ‘Disney came to respect Marvel as it recognised the true value of Marvel’s assets and was able to see the value of its combination with Marvel, or synergy.’

The deal was not smooth until the two companies merged.

Robert Iger told Fox News that the deal was delayed because several Disney board members opposed the acquisition of Marvel, saying that Marvel characters could damage Disney’s healthy image.’

In addition, even after Disney’s Acquisition of Marvel, many media poured out negative reviews, causing Disney’s stock price to decline temporarily.

However, as a result, the synergistic effect predicted by Disney seems to have appeared more than expected. In particular, Marvel’s 22nd film, ‘Avengers: Endgame’, recorded a record profit of over $2.8 billion at the global box office. 

  • Disney’s Acquisition of Marvel was intended to expand the character in areas that Disney lacked. In other words, it is to diversify the product portfolio to broaden the customer base and ultimately increase cash flow through this.

Disney had enough infrastructure to activate Marvel’s Iron Man, Hulk, and Thor. It had a vast network that could make full use of Marvel characters, including not only movies but also theme parks, TV, streaming businesses, and various licensing businesses. These are factors that work as a win-win in Disney’s Acquisition.

  • After Disney’s Acquisition Marvel, it integrated the businesses but chose to preserve the Marvel brand and organisation.

Marvel’s headquarters hadn’t been moved, and as of the end of 2021, Marvel’s CEO and CFO were both people who worked for Marvel before the takeover.

It is judged that it was a consideration for all executives and employees to work creatively and freely as before while preventing the outflow of key personnel by removing anxiety within the target company that M&A could cause from the beginning. 

The Synergy of Disney and Marvel

In conclusion, since their takeover in 2009, Marvel has been a division of Disney and a limited liability company.

Since 2010, all of Marvel’s revenue has been recognised in Disney’s consolidated financial statements under the ‘Studio Entertainment and Consumer Products’ segments.

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The Gross, Budget and Net Profit at the Box Office (Source: Disney, boxofficemojo.com)

We can acknowledge from this graph the synergy between Disney and Marvel. Notice how the Marvel movies released under Disney consistently gained mass profits, perhaps due to the lack of change within the Marvel Universe post-acquisition. 

Disney paid $4.2 billion to acquire Marvel Entertainment in August 2009. Between 2009 and 2019, Disney Acquisition allowed them to release 21 films in the MCU.

Iron Man, the first film in the series, was released while Marvel was still independent. In addition to its initial investment, Disney’s Acquisition provided that they invest an additional $4 billion to produce the 21 films. 

Disney created additional revenues generated through the acquisition of over $17 billion from the $4 Billion principal. That equals over 300% return over the 13 years since Marvel was acquired, or an annualised ROI (Return On Investment) of 27%.

Sources and Further Reading

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To check out more on Disney’s Acquisition, you can take a look at some of the websites we used to gain our understanding and research:

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