A business analysis of how and why companies get bought out and whether Disney can or should buy Electronic Arts soon. In a recent argument on X, a rumor came about where someone mentioned that this might be a real possibility. “Oh, yeah? Then why is Disney buying EA Games?” the person said.
Now this may be just somebody who is seriously behind the power curves because this rumor was officially leaked by Disney back in October. However, Disney does have an earnings call in February so it is just possible that Disney is trying to revive it before dealing with angry investors.
We’ll know one way or another in two weeks. The guy I was arguing with has shilled rumors for Disney before, so in case I’m ahead of the power curve on this one, here are the reasons Disney won’t be buying EA
Although, it might be better to start with the reason they should buy it first. For starters, they are in a major cash crunch.
This is a very good reason to buy something expensive. I know it’s counterintuitive because when you and I buy something expensive, we have to pay money for it and we no longer have that money.
A corporation does not have to pay actual money for something. There’s usually some cash involved but a lot more of it is stock and loans by either adventurous investors or retarded bankers. It’s a package deal.
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Another advantage for Disney is that once you’ve purchased another company, it is a routine matter to shut down various things that aren’t making money and are completely useless OR shut down things that are making money and are valuably useful. Either way, they get to take the tax write-down. Lots and lots of tax write-downs. There is plenty of reorganization that goes on at these times as well. A vast number of objects are being placed under cups and being shuffled skillfully around. A merger enables the concealment of a multitude of financial sins.
You may have heard the phrase (probably from me) “Malinvestment always liquidates in the end.” You may be asking yourself does this stop that?
It doesn’t. Which is why you immediately turn around and make another major acquisition. Any company that does this a lot tends to creep the hell out of financial analysts. Even when they aren’t trying to hide something it’s just as easy to accidentally lose something when a deal this big is going on.
Although, it is rarely an accident.
So, trying to buy something like EA, which has a market cap of about $40 billion and a stock price that currently leaves Disney in the dust, makes a certain amount of sense.
Then there is Bob Iger. Acquisitions are his primary skill set. Shepherding through mega-deals is his default state. It’s his bread and butter.
Also, he came up through sports news. It’s his first love. When he was at ABC, he kept ESPN under his wing, and that paid off bigly. If you are buying EA, you aren’t doing it to make a new Wing Commander or revive Command & Conquer, you especially aren’t doing it to build a good and original game. You buying EA for Madden and FIFA.
So there are some reasons that make it plausible.
You’ve probably thrown up your hands and said, ‘Fine, EA probably deserves to have Bob Iger as its CEO.’
While this is true. What makes it improbable is just how shitty Disney has always been with video games. Disney’s highly regimented, Mickey Mouse tie-wearing corporate culture can’t work within the world of video game development. While I hated Disney for shutting down Lucas Arts, ultimately, they were right to do so because they KNEW they were going to fuck it up eventually, so they were better off taking the write-down while they could (you only have a limited time window to take write-downs after a merger).
What makes buying EA impossible is Disney groaning under the weight of its Hulu purchase. They have no choice about that one.
Cancer Rat is straining to put together an $11 billion buyout. A $40 billion purchase isn’t going to happen. Admittedly, it’s a little easier since Nelson Peltz announced he was raiding the company. Disney’s stock price went up at the news that there might just be a chance of somebody taking charge who has a plan.
And that is the reason this stray voltage might be about to make the rounds again. Bob Iger would prefer people to be talking about him potentially making a major acquisition than Nelson Peltz getting control of the Disney BOD.
Assuming, of course, that the guy I was arguing with isn’t just Pixie Duster jonesing for his next hit of that special magic. If the latter, at least you were able to find out why stray voltage like this happens in the first place
What do you think about Disney’s financial status and the chances of them buying EA? Leave a comment below!
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