Disney Marvels at Potential Profit from Merger

It’s safe to say when Walt Disney Co. announced its purchase of Marvel Entertainment Inc. and its 5,000-strong character stable for US$50 a share earlier this week it was going after Captain America of the Avengers and not, say, Captain Britain of Team Excalibur.

Now, before all the Captain Britain fans get up in arms (you know who you are) the fact that Marvel’s top brands — Spider-Man and the X-Men — are already spoken for is just one of several reasons why, for Citi analyst Jason Bazinet, the deal will be a bad one for the House of Mouse.

“This deal looks smart on paper, but over the long run we suspect this will be viewed as [Robert] Iger’s first major mistake as CEO,” Mr. Bazinet said in a note to clients.

Strategically, it certainly makes sense. Disney has media properties that target just about every demographic except the 10- to 18-year-old male. Marvel fills that niche nicely, while also remaining relevant to the even more lucrative 18-49 male set. The recent surge in the sales of the Iron Man dvd shows that Marvel characters have some pull.

However, Mr. Bazinet has issues with the price Disney paid. Considering Marvel itself has not aggressively repurchased shares when it traded above US$27, he figures Marvel has pegged fair value for its stock at about US$35. This means Disney has devalued its own shares by about US$1.21-billion.

As well, both Time Warner and Universal walked away from movie deals for Iron Man and the Hulk respectively in recent years, forcing Marvel to produce them on its own.

“The decision of other major studios to walk away from Marvel’s lesser known characters casts a long shadow over this pending transaction,” he said.

When it comes right down to it, Marvel just has too many of its lucrative properties tied up.