Disney (DIS +0.87%) CEO Bob Iger made news back in July when he said the entertainment company was preparing to sell non-core assets, including its linear TV businesses.
That could include ABC, one of the big three broadcasting networks, or a range of other properties, including local television affiliates, cable networks, and international networks. Iger said ESPN was off the table, though he would consider taking on additional minority partners for the sports media empire, of which Hearst owns 20%.
Since then, media reports have swirled of bids for ABC and related properties in the $10 billion range, though there's been no update on those since September. However, Disney now seems to be poised to cash in on its first major asset sale as it's reportedly near a deal to sell its Indian operations.
According to Bloomberg, Disney is planning to sell a controlling stake in its Indian operations to Reliance Industries for a figure that values the total business from $7 billion to $10 billion. Under the proposed agreement, Disney would retain a minority stake in its Indian operations.
The news comes as the House of Mouse has struggled on the subcontinent after losing the rights to stream the popular Indian Premier League cricket, which caused Disney+ Hotstar subscribers to plummet. Disney also lost the rights to HBO content to Reliance's JioCinema in another blow.
Disney also owns a sizable linear TV operation in India, which could be on the auction block as well. Back in July, Iger referred to linear TV in an interview with CNBC, saying, "The business model that forms the underpinning of that business, and that has delivered great profits over the years, is definitely broken. And we have to call it like it is. That's part of the transformative work that we're doing."
Image source: Disney.
From acquisitions to divestitures
Iger made his reputation as Hollywood's top dealmaker for a string of acquisitions that included Pixar, Marvel, Star Wars, and Fox's entertainment assets, but Iger now seems to rightly realize that Disney has become too bloated and needs to streamline itself. With the stock price hovering near nine-year lows, selling assets and raising cash seems to be one way to breathe new life into the stock.
Selling the Indian operations would accomplish two things. First, it would raise billions in cash that could go to paying down debt, funding the dividend it plans to start paying soon or investing in growth opportunities, including building a streaming service around its flagship ESPN station, which it plans to do by 2025, or buying the remaining third of Hulu from Comcast.
Additionally, selling the Indian assets would also signal to investors that the Fox assets are more valuable than they might seem. Iger has taken criticism in some corridors for overpaying for the collection of properties from Fox that included the 21st Century Studios, cable channels such as FX and National Geographic, and international properties like Hotstar.
NYSE: DIS
Key Data Points
Is it time to buy Disney stock?
That Disney trades at a nine-year low reflects how weak sentiment around the stock has become. Losses in its streaming division, challenges in linear TV, and the multiple organizational restructurings and changes in the CEO have all contributed to the decline.
However, one catalyst could be enough to start to reverse the recent trend, and that could be a major asset sale, or better-than-expected numbers in its upcoming fiscal fourth-quarter earnings report.
Disney still has a number of attractive attributes including its highly profitable parks and experiences business and library of intellectual property that includes everything from Disney classics to Marvel and Star Wars content.
A recovery is likely to take several quarters to materialize as the company has set a target of reaching profitability in streaming by the end of the fiscal year, and restructuring the portfolio will take time as well. However, improving financials or a major asset sale could provide the catalyst investors are looking for. Investors can take advantage of the low share price by buying the entertainment stock now.
