A Disney Sale to Apple? Don’t Count It Out This Time

A couple of weeks prior to Bob Iger's appearance on CNBC, where he expressed doubts about Disney's linear TV networks being essential to the company, an experienced executive in Hollywood pondered the idea of a game-changing deal: Apple acquiring Disney. This concept has been discussed repeatedly, despite being dismissed by numerous high-ranking executives. They argue that Apple has no interest in purchasing a studio and believe that any such significant deal would be blocked by government regulators.

However, this individual was not as hasty to dismiss the possibility. "I believe that Apple may not acquire the company in its current state," he remarked. "However, if you notice Bob gradually getting rid of certain assets ... it seems like he is preparing for a potential sale. And undoubtedly, no other buyer compares to Apple."

Shortly thereafter, Iger appeared on TV and signaled that Disney's TV enterprises could be available for purchase. In an instant, the potential to envision a streamlined version of Disney that would attract potential buyers became a bit more plausible.

There is absolutely no other purchaser comparable to Apple, who currently possesses a staggering $62 billion in readily available funds and boasts a remarkable market capitalization of $2.8 trillion. Although it is widely known that Apple is not inclined to acquire a production company, it is possible that they might consider purchasing this particular studio. This studio, even amidst the current difficulties it faces, holds a treasure trove of invaluable intellectual property and continues to be the most esteemed brand within the entertainment industry.

For quite some time, Disney and Apple have had a close and unique connection. Steve Jobs was a member of Disney's board of directors from 2006 until he passed away in 2011. Following Jobs' death, Iger became part of Apple's board. However, on September 10th, 2019, the day Apple publicly revealed its venture into the content industry with Apple TV+, Iger stepped down from his position on the board.

Several Hollywood executives are expecting a future where there will be a significant decrease in the number of studios. One industry veteran believes that there will only be three or four major platforms left, with the rest being bought out or losing their significance. These major platforms are predicted to be Apple, Amazon, Netflix, and another unidentified player. The combination of NBCUniversal, Warners, and Paramount might also have enough strength to survive in this industry, although regulatory agencies might have objections to such a merger. If Disney CEO Bob Iger shares this vision, he may consider finding a suitable home for Disney.

According to various reports, Iger, who resumed his position as CEO in November, is currently experiencing a significant level of pressure. Not only is he dealing with an industry that is going through changes, but many of the key members of his team from the successful years are no longer part of the company. High-ranking executives such as General Counsel Alan Braverman and Film Studio Chief Alan Horn have retired. Additionally, CFO Christine McCarthy, who had developed a close relationship with former CEO Bob Chapek, has left the company after being there for 23 years.

This might clarify why Iger is mending his relationship with former high-ranking Disney executives Kevin Mayer and Tom Staggs, both of whom were overlooked for the CEO position but have now been appointed as consultants for the company. (Mayer and Staggs are business partners in Candle Media.) They possess extensive knowledge about the company, and not only can they assist in finding ways to reduce costs for Disney+, but they can also provide aid in potentially selling the linear TV assets such as the ABC broadcast network and its eight local TV stations, as well as cable channels like Freeform and National Geographic.

The other entities owned by Disney, such as Disney Channel and Disney Junior, would likely hold very little value without the support and content provided by the larger company. Similarly, FX would lose its worth without the guidance and programming expertise of John Landgraf and his team. A well-informed observer predicts that Disney will load these assets with debt and then sell them to a private equity firm. This observer believes that these properties, which have the potential to generate $7 billion in profits annually, could be sold for $50 billion. (In fiscal 2022, Disney's traditional TV networks generated $8.5 billion in profits, but this is expected to decrease due to the trend of people cutting their cable subscriptions.) By putting $25 billion of Disney's debt towards this deal, Disney would reduce its overall debt to $20 billion.

The corporation is currently considering selling off the Indian businesses it obtained from Fox. It wouldn't be unexpected for them to sell their majority share in Nat Geo along with the cable channel. Disney's 50 percent ownership in A+E Networks would also probably be up for grabs to a suitable purchaser (with the other half owned by Hearst).

The notion of Disney potentially being put up for sale is a major concern for certain analysts on Wall Street. Laura Martin, an analyst from Needham & Co., has consistently argued that Apple could be a potential buyer for Disney. In fact, she predicts that Disney will be acquired within the next three years, pointing out that takeover premiums for media companies typically fall within the 30 to 40 percent range. Martin expressed her belief on July 14th, stating that if Disney decides not to sell, they will find themselves in direct competition with these tech companies in an industry where profits from content are diminishing.

In a report released in June, Martin suggested that Disney could provide Apple with the boost it requires to encourage the use of its upcoming Vision Pro augmented reality headset. "The fact that Disney CEO Bob Iger was promoting Apple's Vision Pro goggles on stage shows how well Disney's content aligns with Apple's wearable technology," she wrote.

There are individuals who do not have a positive view on a business agreement. Anthony Sabino, a legal expert and educator at St. John's University (and someone who greatly admires Disney), states that Iger's contract extension and the possible sale of Disney's traditional TV properties "indicates that the board of directors wants him to lead the company, and there is no consideration of him disposing of the company."

If Disney were to make any agreement, it would definitely attract close examination from the Biden administration, which has been assertively suing to hinder major deals from being concluded, although the outcomes have been varied.

"It's undeniable, it's a complete certainty that if there were any discussions about Disney joining forces with another company, it would be closely examined by the FTC, and the Department of Justice," suggests Sabino. "So, it would essentially be like knowingly stepping into a dangerous situation that I don't think any company would willingly get involved with." A Republican government might potentially be more forgiving when it comes to a significant agreement (although it was the Trump administration that attempted and failed to prevent AT&T's takeover of Time Warner).

The current intersections between Apple and Disney are relatively minimal—nowhere near the extent of Disney's Fox purchase, which had a significant impact on a long-established film studio. However, the concern lies in the immense magnitude and influence that would arise from the merger of these two companies.

However, there are a couple of recent legal cases that may have implications for any potential Disney deal. The Federal Trade Commission (FTC) and the Department of Justice (DOJ) have both filed lawsuits that could be relevant in this context. The FTC's attempt to block Microsoft's acquisition of the video game publisher Activision Blizzard was unsuccessful. This situation is similar, as it involves a big tech company and platform owner trying to acquire a primarily content-based company. Microsoft made a preemptive commitment to continue offering important games to competitors like Nintendo and Sony, and this pledge played a significant role in the judge's decision. This outcome could serve as a possible guide or reference for a Disney deal involving a major tech company.

In contrast, the Justice Department achieved a major victory when a judge blocked Paramount's sale of Simon & Schuster to Penguin Random House in 2022. The DOJ put forth the argument of a "monopsony," asserting that the merger would have adverse effects on authors seeking to sell their work. Given that all the potential buyers from Disney already possess their own studios, the government could present a similar argument. However, there is speculation that Disney might proactively divest some of its studio assets (such as 20th Century Studios and Searchlight Pictures) to maintain competition in the market and prevent any potential monopsony litigation.

Devoted followers of Disney, many of whom own shares in the company, might be hesitant to believe that a technology company would truly prioritize Disney's main sources of entertainment and theme park ventures. One such individual is Sabino who strongly believes that Disney shareholders would be outraged by such a prospect. However, considering the vast number of shares in circulation, exceeding 1.8 billion, and the fact that more than 60 percent of these shares are owned by institutional investors, it is possible that retail shareholders who are Disney fans may not possess the influence required to prevent a potential agreement.

There is an individual who has been contemplating an agreement between Apple and Disney for a long time. In his memoir called "The Ride of a Lifetime" from 2019, Iger extensively discussed his close relationship with Jobs, who funded and played a crucial role in establishing Pixar, eventually selling it to Disney in 2006. Prior to the pandemic and his return from retirement to oversee a struggling Disney, Iger expressed his belief that "if Steve were still alive, we would have merged our companies, or at the very least, engaged in a thoroughly serious discussion about the possibility."

This article has been revised to provide a more precise depiction of Steve Jobs' involvement with Pixar.

The blog section was initially featured in the magazine's edition released on August 9th and is available for subscription by clicking here.