The Walt Disney Company (DIS) announced on August 31, 2009 that it would buy Marvel Entertainment Inc. (MVL) in a deal estimated to be worth $4 billion. The cash and stock deal may not immediately help Disney’s bottom line, but if its 2006 acquisition of Pixar Animation Studios (PIXR) is any indication, Disney will weave its marketing magic around Marvel’s huge library of characters to create a bona fide hit.
Marvel, the largest American comic book publisher, brings to Disney over 5,000 characters, several of whom have starred in major motion pictures in recent years. Disney hopes to leverage the characters’ popularity into more of its blockbuster movies, character licensing deals and theme park attractions.
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The purchase appears designed to appeal to the young male demographic, where Disney has struggled in recent years. Most of Disney’s current franchises, including the Jonas Brothers and “Hannah Montana” are huge hits with the girls. The boys have preferred the Marvel superhero movies.
Disney has already been showing Marvel TV shows on its newly re-branded and male-centric cable network, Disney XD. Viewer ship has already increased among both boys and girls. Once Disney gains full control, expect more Marvel fare. This will allow Disney to attract more boy-focused advertising.
Unfortunately, Disney will not be able to immediately capitalize on several of Marvel’s best-known and most profitable characters as they are locked into deals with competing studios. The rights to “Spider-Man” belong, in perpetuity, to Sony Corp.’s (SNE) Columbia Pictures. It plans to release “Spider-Man 4 in spring 2010. Meanwhile, News Corp.’s (NWS) 20th Century Fox has the rights to four other popular franchises; “X-Men,” Daredevil,” “Fantastic Four,” and “Silver Surfer” all belong to 20th Century Fox as long as it continues to use the characters in movies. Viacom Inc.’s (VIA) Paramount Pictures owns distribution rights to “Captain America” and “Iron Man” movies.
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Disney plans to honor all of Marvel’s licensing deals, re-examining them as they expire. These deals will hamper Disney’s ability to cash in on some very popular characters, but the company’s creative marketing should have no trouble creating blockbusters with some of the other thousands of characters available.
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Disney expects to finalize the deal by the end of the year, pending antitrust review and approval by Marvel shareholders. Both companies’ boards have already approved the deal.
Although Marvel shares jumped significantly on the news, Disney saw a slight decline in share price. Investors no doubt recognize that the deal will hurt Disney’s per share earnings in the short term. Given Marvel’s plans for the 2011 release of two expensive blockbusters, Disney may not see positive results from the deal until its 2012 fiscal year. Nonetheless, the purchase looks like a win for Disney.
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Investors currently holding a Disney stock trading position and not wanting to sell because of tax reasons might consider using stock options to turn their short-term non-performing Disney stock trading position into a cash generating ATM machine.
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To generate income for Disney a stock trading position using stock options, an investor would sell call options against the stock. This is known as the covered call investing strategy. Covered calls gives investors the opportunity to generate income, especially when they think their stock is not going to appreciate in the near term.
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For example a covered call investing position is available for Disney for October of 2009 with a potential return of 2.6% – this return may be realized in only 32 days. And if the Disney stock trading position suddenly begins to rise, the covered calls could be rolled to a new strike price. The call option could be rolled out to a new month as well, depending upon the situation. Many investors consider the covered call investing strategy to be capped, but applying a roll methodology to covered calls takes the cap off of the covered call investing strategy and enables an investor to participate in a stock trading position’s rise in price.
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[tags] Jonas Brothers, Hannah Montana, Spider-Man, Columbia Pictures, 20th Century Fox, X-Men, Daredevil, Fantastic Four, Silver Surfer, Paramount Pictures, Captain America, Iron Man, DIS, Disney (The Walt) Co., MVL, Marvel Enterprises Inc., NWS, News Corp. Ltd. (The) Class B, SNE, Sony Corp. ADR, VIA, Viacom Class A [/tags]