Star Wars Episode $4.05 Billion: A New Franchise

This week, the unthinkable happened. It was an event that baffled even the experts, and had some proclaiming that the end was nigh.

Disney (NYSE: DIS  ) acquired Lucasfilm Limited for $4.05 billion.

Many Star Wars fans are not reacting favorably to this news, while many others believe it could be the start of something great for the franchise. Regardless of your opinion of Darth Vader, Disney investors should know that this company can handle an acquisition of this magnitude, while still staying afloat as a company, and then some.

Look at the Size of That Thing!
To make absolutely sure Disney has what it takes to obtain Lucasfilm, we must check out its financials. The cash flow statement, in particular, shows what the company has been doing with its money up until now, and whether it's already taking on too much debt to survive.

Year

Free Cash Flow

Net Cash from Operations

Acquisitions

Borrowings

2011

$2.8 billion

$6.9 billion

($184 million)

$10.9 billion

2010

$3.9 billion

$6.5 billion

($2.4 billion)

$10.1 billion

2009

$4.2 billion

$5.3 billion

($176 million)

$11.4 billion

Source: Disney 2011 and 2010 10-K

Judging from this chart, Disney has had plenty of cash in its coffers over the past few years. It has also kept its debt, in terms of borrowings, relatively in check. Having $4.05 billion in next year's Acquisitions section may throw the company for a temporary loop, but Disney is no stranger to shelling out mega bucks to take on useful companies. Its previous high-profile acquisitions include buying computer animation mega house Pixar for $7.4 billion in 2006, and comic house Marvel in 2009, for $4.2 billion. While each move was met with its share of fan reproach, both have resulted in huge benefits for Disney.

Pixar, I Am Your Father
Cars, the first film resulting from the acquisition of Pixar, may not have been well loved by critics or box office goers (it brought in $460 million in ticket sales), but its sales in retail products ($5 billion) are nothing short of astounding. Lucrative sequels and merchandise followed (who knew kids liked playing with toy cars?), and the resulting profits gave room for the creation of new classics like Up, Wall-E, and the perennial tear-jerker, Toy Story 3. Pixar has clearly served Disney very, very well.

Marvel-ing Over Profits
Following the merger with Marvel in 2009, Disney produced hit after spandex-clad hit. Its most recent offering, The Avengers, made $1.3 billion worldwide, becoming the highest grossing Disney movie ever, and the third-highest grossing film of all time. And, as far as Disney is concerned, that's just the beginning. The company will continue to crank out individual character-focused films, as well as Avengers sequels, faster than you can say Agent Coulson.

Foolish Takeaway
While only time can tell how this move will pay off, Disney knows exactly what it's doing in acquiring Lucasfilm, and promises this merger will result in at least one more Star Wars movie, slated for release in 2015. Even if the film is terrible, Star Wars fans won't be able to help themselves from lining up at midnight to get a ticket, if only for novelty's sake. This nostalgia could end up writing a huge check for Disney, whether through ticket sales, merchandise, and the like. That said, here's hoping Jar Jar Binks stays far, far away.

 
 
 

Caroline Bennett has no positions in the stocks mentioned above. The Motley Fool owns shares of Walt Disney. Motley Fool newsletter services recommend Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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