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Move over, New York City: Spider-Man will be coming to rescue the citizens of The Magic Kingdom from now on. Yes, Disney (NYSE: DIS ) announced yesterday that it will purchase Marvel Entertainment (NYSE: MVL ) for $4 billion in a combination cash-and-stock deal. The news sent Marvel shares soaring and Disney shares down slightly.
We couldn't let the big news go without assembling a Foolish roundtable to debate a pair of questions surrounding the acquisition. First up, our contributors will discuss whether the 29% premium Disney paid was too much. After that, they'll examine the potential synergies Disney can unlock to make the deal a success.
Face front, True Believers, and get ready for a lively debate.
Did Disney overpay for Marvel's assets and intellectual property, or did Disney snatch up an undervalued company that will be a potential revenue driver for the Mouse's empire?
Tim Beyers, Motley Fool writer and Rule Breakers analyst: Disney probably paid as much as it could. Any more, and there would have been no deal. And I would have been fine with that.
Why? Take a look at the segment data. Marvel Studios, on the strength of one blockbuster in Iron Man and a mediocre draw in The Incredible Hulk, produced almost $130 million in operating income over the past year. Tax that at 40% and assign a modest multiple of 10 times earnings, because of the uncertainty of the movie business, and you're left with a division worth $779 million all by itself. Disney's price conservatively values the remainder at roughly $3.2 billion, equal to 17 times trailing earnings.
Marvel's operating income was growing 28% a year on average before anyone had seen Robert Downey Jr. wow audiences as Tony Stark. Mr. Market would have paid up for that sort of growth eventually, and at far more than $50 per share.
Charly Travers, associate advisor, Million Dollar Portfolio: Christmas came early for Marvel shareholders, as Santa Disney brought them a beautiful gift. Marvel does not generate anywhere near as much cash as a simple free cash flow calculation would indicate. All the money borrowed to make a film -- money that must be repaid from film proceeds -- cannot be ignored, because that cash is not available to shareholders.
Once you factor this in, it becomes apparent that Marvel's movie segment is nothing more than a shell game that moves money from one place to another while never generating any value for the firm.
Rick Munarriz, Motley Fool writer and Rule Breakers analyst: Folks thought that Disney overpaid for Pixar three years ago, but that was before Disney began enhancing the value of Pixar's character library through theme-park attractions and online games.
You don't find too many critics of the Pixar deal these days, and that took place at richer multiples than yesterday's Marvel deal.
How do you see Disney integrating Marvel and unlocking potential synergies?
Beyers: Disney is the world's largest licensor but Marvel is fourth, beating big names such as Mattel (NYSE: MAT ) , Ford (NYSE: F ) , and Playboy Enterprises (NYSE: PLA ) . Together, these two could become the world's most profitable licensing imprint.
There's plenty of room for growth. By my math, Disney tends to earn a 10% royalty rate on its licensed properties. Marvel gets 5% today, but it'll get more as a Disney business unit. The Mouse commands a premium because its theme parks, retail stores, and broadcast properties offer an unmatched marketing and distribution machine.
Travers: Maybe we'll see Silver Surfer hosting SportsCenter. At a purchase price that is 20 times Marvel's guided EBITDA for '09, Disney needs a heck of a lot of "synergies" for this deal to make sense.
Munarriz: This move fills a serious void in the Disney lifeline. Kids love Mickey, Minnie, and Buzz Lightyear. Preteen girls swoon over the Jonas Brothers and any bubblegum pop from the Disney Channel.
Then we hit the teen years, and Disney doesn't catch up with that group -- particularly young males -- until they come around a decade later as parents. Sure, Disney has ESPN, but there is little exclusivity in sports programming.
Marvel will help Disney enormously on that front, with the live-action hooks that have been missing since the Pirates of the Caribbean trilogy came and sailed.
It will get a little thorny in the theme parks, where the rival Universal Orlando resort -- owned by Blackstone Group (NYSE: BX ) and General Electric (NYSE: GE ) -- apparently has theme-park attraction rights to the marquee Marvel characters east of the Mississippi.
That will change. I can't imagine Universal willingly fattening the coffers of a rival for too much longer.
At the end of the day, it's going to be harder to outgrow Disney with Marvel on its side.
Whether you like what you heard or disagree with one of our contributors, let us know in the comments section below. Or have a look at some other Foolish roundtables: