M&A Deals as an Instrument that Ensures Global Competitiveness. The Example of Disney Media Conglomerate
Mergers and acquisitions as a tool and factors of competitiveness of the company. The Walt Disney company, its activity and main competitors. M&a transactions as a tool for development. Improving the weakest segment of сompany using M&A Strategy.
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M&A Deals as an Instrument that Ensures Global Competitiveness. The Example of Disney Media Conglomerate
competitiveness m&a strategy
In current economic conditions many companies seek for effective development strategies in order to increase their global competitiveness, to have higher profitability and total value. Today one of such strategies is mergers and acquisitions deals. M&As is one of the most widespread ways of development used by the majority of successful companies. These transactions become the integral processes of the modern market relations.
Recently the level of competition in the majority of fields of activity has increased sharply. That is why there is a need for processes of mergers and acquisitions to ensure business growth for the company which seeks to take the leading positions in the world market. For this reason M&A deals can be considered as one of the most important mechanisms that ensure company's global competitiveness.
International experience in the area of M&A transactions shows that approximately 76% of such deals are terminated in failure. Thus, the integration strategy of growth has a positive effect only under the condition that company correctly carries out M&A transaction at all its stages: target selection and evaluation, settlement of the transaction, the final decision and post-merger integration phase.
The total cost of M&A deals declared in 2014 was nearly 3,1 trillion USD http://www.dealogic.com/media/120242/dealogicm_areview_summary_-fullyear2014.pdf . It is the largest indicator after 2007 and 2006 when the volume of M&A transactions reached 4,62 and 3,91 trillion US dollars correspondingly. According to Bloomberg, in 2014 11 most expensive transactions which worth more than 20 billion US dollars were declared, including the purchase of cable division of Time Warner by Comcast Corporation for 45 billion US dollars and purchase of the Irish producer of medical equipment Covidien by its American competitor Medtronic for 43 billion US dollars http://www.streetinsider.com/ma_top_deals.php?year=2014 .
Studying the experience of the leading international companies' M&A deals is extremely important for the Russian business. Merges and acquisitions contribute the integration of national economy into the world one when Russian companies enter the world market. This integration has two main directions. Foreign companies buy entirely or partially Russian operating companies, introducing their capital, modern level of management and technologies. The Russian companies also use merges and acquisitions for the expansion on the foreign markets. The Russian market of M&As shows a tendency to growth within the last decade. Further growth and expansion of geography of a foreign production network of the Russian companies can make such integration symmetric (unlike unilateral penetration of the foreign companies into the Russian economy), making it stronger and more steady in the long term.
In this paper we will analyze the most significant M&A deals of The Walt Disney Company and identify the effect of each transaction on each segment and of the business in a whole in terms of the increase of global competitiveness of the company. Afterwards, we will identify the most vulnerable segment and suggest companies, which Disney can acquire in order to increase its market share in this segment and thereby increase the global competitiveness of the whole conglomerate. To do this, features of global competitiveness, types of M&A deals as well as the impact of M&A deals on the company's competitiveness growth and major financial and market data of target companies will be considered.
The relevance of this study consists in the fact that M&A deals are becoming more and more popular as it is the strategy that is able to significantly increase global competitiveness of the company. TWDC is one of the leading companies in the entertainment market but it seeks to become the world leader and to do so it has chosen the M&A strategy. Thus, analyzing the impact of different M&A deals on the growth of global competitiveness of The Walt Disney Company will prove the fact that M&A deals play the crucial role in maximizing global competitiveness of the company. Moreover, analyzing target companies and identifying the one that will bring TWDC the most advantage will help it to move even further on the way to becoming the world leader in entertainment business.
The main hypothesis of this paper is that Disney Conglomerate uses the strategy of M&As successfully, which helps it to increase significantly its global competitiveness in the entertainment market.
The subject of the work is influence of M&A deals on the global competitiveness of the company, and the object is - M&A deals of The Walt Disney Company.
The goal of the study is identification Disney's M&A deals' input in the company's global competitiveness and suggestions on making the company the world leader in entertainment market using M&A deals. Thus, the main objectives of this work are:
— Define global competitiveness and factors that ensure it;
— Consider M&A deals and their types;
— Determine motives and drawbacks of M&A deals;
— Analyze the most significant M&A deals of TWDC;
— Define how each deal influenced global competitiveness of The Walt Disney Company;
— Analyze how the deals affected each segment of the company in terms of global competitiveness;
— Identify the segment which has the least market share and is the most vulnerable one;
— Select among several target companies one, that can be acquired by TWDC;
— Prove that this M&A deal will bring the synergetic effect and increase Disney's global competitiveness;
— Make a conclusion how M&A deals influence global competitiveness and suggest to increase it by acquiring the company that can increase the market share of one of its segments;
Thus, this work aims to prove the fact that when the company has the right plan of business restructuring and follows all the steps of the deal conscientiously, mergers and acquisitions can help it to increase its global competitiveness and to reach leadership positions in the market, as it has done The Walt Disney Company.
In order to reach the set goals, the following sources of information will be used: Internet, periodical data, statistics, research papers of studies done on this topic, theoretical books and lectures of professor Klochko O.A..
The theoretical base of the research consists of the works of foreign and Russian economists in the field of mergers and acquisitions deals and also in the field of global competitiveness, such as: R. Brealey, S. Meyers, John. C. Van Horne, A. Damodaran, Michael C. Jensen, R. Roll, Y. Amihud and B. Lev, David S. Scharfstein and Jeremy C. Stein, A. Devenow and I. Welch, Dennis C. Mueller, Stephen A. Rhoades, A. Shleifer and Robert W. Vishny, M. Porter, Philip Kotler, M. Fujita (1988), Paul R. Krugman (1991), Anthony J. Venables (1996), M. Tohmo (2007), G. Ottaviano (2003) and Kern (2005).
The methodological basis of research is made according to the general scientific methods of descriptive, logical and comparative analysis, expert estimates methods, approaches to company valuation during the M&A deals.
This paper consists of three parts: Theoretical, Analytical and Practical. Theoretical part includes all the major definitions and theories that are relevant to the topic. Analytical part consists of considering the Disney's most significant M&A deals (acquisitions of Pixar, Marvel and Lucasfilm) and their influence on the company's activity and its global competitiveness. Finally, the main goal of the Practical Part of the paper was to analyze all the operating segments of TWDC, identify M&A deals' influence on them and select the best company to acquire in terms of its activity, financial performance, market multiples and synergetic effect that can increase The Walt Disney Company's global competitiveness.
1. Theoretical part and Metrological Basics of M&A Deals as an Instrument That Increases Global Competitiveness
1.1 Factors that Ensure Company's Global Competitiveness
Global Competitiveness is the ability of companies to compete in international markets Cambridge Dictionary Online: http://dictionary.cambridge.org/dictionary/business-english/competitiveness . It is characterized by the development, production and sale of goods and services worldwide. Competition occurs when a firm decides to maximize its profits using global sources.
International competition is developing under the influence of the main trends: decreasing differences between countries, the emergence of new large-scale markets, free movement of technology and aggressive competition by companies in the newly industrialized countries.
Companies which seek to increase their global competitiveness often face a number of difficulties which can substantially influence the business and can become a stumbling block for them. There are the following obstacles:
· complexity of analysis and strategy formation;
· distinction in production expenses;
· fluctuations of exchange rates;
· high expenses on transportation and warehousing;
· different needs for goods or service in the different countries;
· insufficient demand in the world market;
· fast changes in technologies;
· relationship of firm with the local governments;
However, despite the barriers mentioned above, every large corporation desires to become a global leader in the industry. There are many factors that affect global competitiveness of the company.
Scientific interest for this issue increased since 1990s when M. Porter's book “Competitive Advantage of Nations“ was published. Today there is a great number of economists who consider the global competitiveness' influence on the economy. The most significant researchers in this field are: Philip Kotler (1967), M. Fujita (1988), Paul R. Krugman (1991), Anthony J. Venables (1996), M. Tohmo (2007), G. Ottaviano (2003) and Kern (2005). Generalizing all the available theories, all of the factors that influence global competitiveness of the company can be combined into the following groups http://www.investopedia.com/articles/stocks/08/secrets-success-company-stock.asp :
· Availability of competitive advantage;
· Above-average management;
· Market leadership;
“The term competitive advantage refers to the ability gained through attributes and resources to perform at a higher level than others in the same industry or market”. Christensen and Fahey 1984, Kay 1994, Porter 1980 cited by Chacarbaghi and Lynch 1999, p. 45
Competitive advantage ensures company's success in the foreign market and it depends on the chosen competitive strategy Competitive advantage. Creating and sustaining superior performance. Michael E. Porter, 1985. A choice of competitive strategy of the firm in the industry is affected by two main aspects.
1. The structure of the industry in which the firm operates, i.e. features of the competition. Competition in the industry is influenced by five factors:
a. emergence of new competitors (barriers to entry);
b. appearance of substitute goods or services;
c. ability of suppliers to bargain;
d. ability of buyers to bargain;
e. rivalry between existing competitors.
These five factors determine the profitability of the industry because they influence the prices set by firms, their costs, investments and other.
1. Firm's position in the industry is primarily determined by its competitive advantage. The firm can become the leader if it has a stable competitive advantage:
1) lower costs, indicating the company's ability to develop and to produce and sell comparable goods at lower costs than competitors.
2) product differentiation, i.e. the firm's ability to satisfy customer's needs offering either goods of higher quality or goods with the broad capabilities of after-sales service.
Competitive advantage leads to a higher productivity than competitors have. Another important factor influencing the position of the firm in the industry is the field of competition or the breadth of the objectives that guide the firm within its industry.
M. Porter, the founder of competitor advantage theory, distinguishes four features of the country affecting its international success of a company. However his adherents developed his theory and added two more features. The main determinants of the competitive advantage include the following conditions: factor conditions, demand conditions, strategy, structure and rivalry, existence of related and supporting industries, chance and government role. This influence can be both positive and negative.
The quality of leadership is one of the main factors that determine its success: leaders take the most important and long-term decisions on activities, functions, and operation of the company. They affect how successful the company will conduct its activities. Directors and owners can both raise a company and ruin it.
Qualified leadership that can make the company a worthy competitor in the world market should perform the following functions:
· direction of the company to achieve high economic and financial results, ensuring high quality of customer service;
· effective organization of work and interaction between structural subdivisions of the company;
· strict adherence of measures to fulfil the terms of agreements, obligations to the state budget, suppliers, customers, banks;
· introduction of progressive forms of business, the improvement of existing business forms, improvement of production technologies and equipment;
· development of the plan for economic and social development of the company;
· measures to provide the company with qualified staff, better use of knowledge and experience of employees, creation of a favorable climate in the team, safe and supportive environment for their work and etc.
Management is a key factor that determines the success of the company. In order to perform the assigned tasks the company's head must be able to quickly find resources and to distribute them efficiently, to increase the productivity of the organization and its units as well as to interact effectively with employees, partners and senior managers.
Market leaders usually take a consistently strong position; they have the maximum market share, above average profitability and overall fame. These companies typically provide an example to competitors while changing pricing policy, introducing new products, expanding distribution channels and increasing the intensity of the promotion activities. The main strategic goal of the leader is to maintain its position, amplify it and to occupy a dominant position in the global market. The dominant position obliges the company to be active on three fronts. First, the company needs to find ways to improve the overall demand for manufactured industry products or services performed. Secondly, it needs to protect its market segment through well-planned defensive and offensive actions. Thirdly, the leader may try to expand its market share even with the stabilization of its total volume.
Market leadership is the factor which is most difficult to achieve because it is the result of both a competitive advantage and effective operation of the company's management.
Successful possession of all the factors mentioned above will allow the company not only to occupy a leading position in the domestic market but also to make it a worthy competitor in the international market. However these factors do not exclude the fact that in order to achieve and increase global competitiveness the company has to develop a strategy.
Every successfully functioning company faces the decision what development strategy to choose - strategy of organic growth or another investment strategy. The company may ensure its global competitiveness using mergers and acquisitions.
Merges and acquisitions is an instrument of competitive struggle for resources, sales markets, distribution channels, technologies and know-how. Company's competitiveness in the world market directly depends on the effectiveness of applying the external opportunities to solve the internal strategic tasks. If M&A deal is successful the company has the ability to increase its market share, have vertical and horizontal integration, benefit from services of above average management, due to attraction of new management units and get access to all the assets of the acquired company. For example, in an industry where there are high barriers to market entry mergers and acquisitions can bring significant benefits. If a buyer will make a deal with a leading company in the market with limited access, the chance to become a leader in this market will be close to the highest.
M&A deals have an impact on all the participants of the market competitive struggle and may lead to the significant changes in doing business in the definite segment. Such deals are very hard to introduce as they require accurate estimations and evaluations. Only approximately one third of all the transactions lead to a significant increase in the value of the company. This is largely due to an improperly built strategic plan of the company, which can lead to a number of drawbacks which include overpayment risk, underestimation of the consequences of the transaction, risk of wrong definition of the object of purchase, risk of loss of the main managers and experts, etc.
However, today merges and acquisitions transactions are rather relevant for the business environment because of the dynamism of markets development and presence of a large number of competitors. Such competitive struggle leads to high importance of M&A deals as they allow the company to adapt promptly to changing market conditions and not to gain competitive advantages. Effective and justified M&As nowadays help the company to improve its market share and also to win the leading positions surpassing the rivals.
1.2 Definition of Mergers and Acquisitions and their types
Mergers and acquisitions Cambridge Dictionary Online: http://dictionary.cambridge.org/dictionary/business-english/mergers-and-acquisitions is a process of business capital growth focused on combining two or more companies into a single corporation with a single governing body. Merging company takes the lead of both companies on behalf of one. Thus, as a result of restructuring, a larger and more competitive company appears in the market instead of several smaller ones.
M&A is a form of reorganization of enterprises. Typically, companies use the strategy of mergers and acquisitions in order to increase their production capacity, to diversify, to expand and to improve the functioning of activities. The main reason of M&A deal is the fact that the larger the organization is, the easier it is to compete in the market, avoid bankruptcy, maintain profitability and ensure global leadership. In other words, two companies together are more valuable and powerful than the two separate companies.
The difference between the terms "merger" and "acquisition" consists in the method of the union Journal of Accountancy: http://journalofaccountancy.com/Issues/2002/Nov/DifferenceBetweenMergersAndAcquisitions.htm . Merger involves pooling of resources. That means that merging companies can be considered as equal companions who decided to unite their efforts in order to increase strength of their assets, to capture larger market share, to expand consumer base and to obtain a higher profit. The main purpose of merger is to use assets of both companies and combine them in order to create a new body, the value of which is greater than the sum of the two original objects. All the shares of both companies are reissued after the merger. Mergers are usually voluntary, and shareholders of both companies retain the same interests in the new business.
As for acquisitions, they imply that one company buys another company, but new company is not created. Acquisition occurs through the purchase of a controlling stake (more than 50% of shares) of another company. Larger companies usually acquire smaller ones. In such cases, the company absorbs the smaller one and proclaims itself as the owner.
Ceteris paribus, from a legal point of view, the merger is a process of uniting two equal companies into one new unit; however the acquisition can be defined by termination of the bought company while the remaining one gets all rights and obligations of the dissolved company.
There are two factors that are needed to evaluate the company's growth. The first is the growth rate (it includes growth rate of income, sales, and others), the second indicator is the return on invested capital. Analyzing these two indicators the company decides which path to choose - reinvesting profits or purchase of another company. In general, it can be said that the deal of merger or acquisition sometimes gives more benefits than the company can get by reinvesting its profits, as it gives it the qualitative benefits such as access to new markets, the expansion of the customer base and other benefits The Valuation of Company's Price Under Mergers and Acquisitions. Tikhomirov D.V. Tutorial - SPb. 2012 p.12.
There are certain types of M&A deals Finance and Credit. Merger and Acquisition transactions: concept and types, stages of evolution and main principals of implementation. V.L. Maximova, N.V. Fadeikina, 2011. p.70. These types are classified according to the nature of the companies' integration, national identity of the merged companies, relation to mergers and acquisitions, method and source of financing transactions.
According to the nature of integration mergers and acquisitions are divided into the following types:
· Horizontal - merges in the same industry;
· Vertical - merges in different industries related by technological process of production of the finished product;
· Generic - merges of companies that produce related products;
· Conglomerate - merges in different industries that do not have common suppliers, customers or competitors.
According to the nationality of merged companies M&As are divided into two types:
· Cross-border - mergers and acquisitions of companies located in different countries;
· National - mergers and acquisitions of companies within the same state.
According to the relationship of management to the deal friendly and hostile mergers and acquisitions are distinguished.
During friendly merger (acquisition) management and shareholders of the acquired companies support this deal, and in some cases seek it. Conversely, during hostile takeover (merger) the deal takes place despite the opposition from senior staff or shareholders of the acquired company.
There are different methods of financing. Mergers and acquisitions can be carried out in cash, exchange of shares or both.
Funding sources include debt financing (credits, bonds, promissory notes), which are called Leveraged buyouts (LBOs). Usually, the ratio between debt and assets is 90% to 10%. Existing managers can also buy a controlling stake in the company (Managerial buyouts, MBOs). Such method is mostly often used when a company is in an economically weak position and the owners refuse to fund it further. In most cases MBOs occur due to the third parties, banks or private equity funds, because management usually does not have sufficient funds to redeem the share of their company. Management Buy-in is more likely to occur when the company is bought out by external managers, who later become the new leaders of this company http://www.investopedia.com/terms/m/mbo.asp .
According to the international consulting firm AT Kearney in 2014 there was a global M&A market downturn. The number of transactions in developed countries fell by 16% however the number of M&A transactions in developing countries grew. The developed countries with the highest number of transactions are still the United States, Great Britain and Canada. Among developing are China, Malaysia and India. As for the Russian M&A market, the number of M&A deals has not yet reached the pre-crisis level but is broadly in line with world trends, with the proviso that the Russian mergers are mostly internal transactions.
1.3 Motives and drawbacks of M&A Deals
The main purpose of M&A deals is to improve the financial position of the company. However, there are many theories that prove mergers and acquisitions to be not only helpful when the company wants to increase its financial benefits and global competitiveness, but also they can be completely destructive to the company. The success or failure depends on many factors, for example, the motives of mergers and acquisitions.
Motives of mergers and acquisitions are traditionally divided into three main theories:
• synergetic theory;
• theory of free cash flow;
• theory of managers' hubris.
The main point of the synergetic theory lies in the motive of increasing the value of associated companies using the opportunities arising after merging (R. Brealey, S. Meyers, John. C. Van Horne) Problems of Modern Economy, Eurasian International Scientific-Analytical Edition, N 1 (33), 2010.. Synergetic effect has various forms which become the motives for M&A deals.
In business, synergy means benefits from joint activities of several enterprises (companies) in comparison with their disparate activities Tom Copeland, Tim Koller, and Jack Murrin. Valuation: Measuring and Managing the Value of Companies, 1990. Another definition gives A. Damodaran: "Synergy refers to the potential additional value from combining two firms” Security Analysis for Investment and Corporate Finance, A. Damodaran 2006..
Synergetic effects occur as a result of disintegration processes after the elimination of inefficient units. According to this theory, when considering the kinds of synergies, the following effects are determined: the operational, financial Management in Russia and abroad, Journal №4, 2011 and management synergies N.B. Rudyk, E.V. Semenkova.
Synergy can be achieved through the economies of scale, the increase of the Price/Profit multiplier, the lower price of debt servicing, the empowerment of debt financing, the quality control, the improve of the competitive position and others.
The theory of free cash flows (Michael C. Jensen) The Essence of Mergers and Acquisitions, Dr. Sudarsanam P.S., Prentice Hall, 2000, p 21 assumes the existence of the agency conflicts in corporation and the related inefficiency of managers' activity. It defines free cash flows as cash flow after financing all the effective investment projects (with the positive net specified value). According to the theory, managers, working in interests of shareholders, have to pay these cash flows to the existing shareholders in the form of dividends. However, in reality managers have no motivation for such actions. Therefore they are inclined to invest free money in inefficient investment projects, for example, merges or acquisitions. This theory helps to understand how merges reflect the conflict between managers and shareholders, and also reflect the method of conflict resolution - repayment by debt financing.
The third theory is the theory of hubris and personal motives of the management. So, the theories of hubris (R. Roll, 1986), risk diversification (Y. Amihud and B. Lev, 1981), reputation (David S. Scharfstein and Jeremy C. Stein, 1990), herding (A. Devenow and I. Welch, 1996), entrenchment (A. Shleifer and Robert W. Vishny, 1989) and empire-building (C. Mueller, 1969, Stephen A. Rhoades, 1983) claim that the majority of transactions of merges and acquisitions are based on personal interests of management which seeks to increase their power and recognition. They seek to establish a new super company which will become the world market leader thanks to their contribution. Also they claim to greater compensation whereas power and wages limits depend on the size of the corporation.
Even when the merger doesn't bear any synergetic benefits, the decision is positive because management considers only their own assessment of the company and assumes that the market underestimates its competitive advantages. That is why the theory carries the name of the theory of hubris as in the absence of economic benefits from merges the decision on purchase of the company can be made only under the influence of subjective decisions of the managers considering that only they know all the prospects of the company.
From time to time M&As are carried out with the aim to create an illusion of prosperity in the eyes of shareholders. For example, the wave of mergers and acquisitions in the U.S. banking industry in the 80s is partly explained by the desire of managers to demonstrate good performance (growth in share price, turnover and capital). Typically, in such situations, the decisions tend to be unsuccessful which finally reveals a few years after the takeover.
The two last theories explain motives that can lead to unsuccessful M&A deals.
However, there are other important motives for mergers or acquisitions, which make them particularly attractive among large companies. The main motives of M&As include the following ones The Handbook Of Mergers And Acquisitions, David Faulkner, 2012. p. 71-113, Mergers and Acquisitions. Guide in the Professional Service market. Alpina Business Books, The Platzdarm Group, 2004, p. 16:
· Growth of the company;
· Economies of scale;
· Economy of scope;
· Vertical integration;
· Combining complementary resources;
· Tax motives;
· Geographical diversification;
· Resource transfer;
· Business diversification;
· Elimination of competitors (monopoly motif);
· Protection motives;
Possible drawbacks of mergers and acquisitions include:
· possibility of incorrect determination of business attractiveness;
· high risk in case of an incorrect assessment of the company (exceeded cost of acquisition of the asset, additional investments);
· incomplete or inaccurate information on the object (wrong choice of strategy);
· increase of the cost of capital maintenance (the risk of synergy loss);
· reduction of the company's creditworthiness in response to the expansion of the business and the uncertainty of the results of post integration processes;
· difficulty of integrating the companies, especially if they are in a different, unfamiliar to each other areas (increased integration costs);
· possible problems with the staff of the bought company after the implementation of the transaction;
· differences in the qualifications of management team;
· the possibility of incompatibility of cultures of the two companies, especially in cross-border acquisitions;
· loss of customer loyalty or their outflow in post-completion period.
Despite all the disadvantages the number of M&A deals today is growing very fast. Cross-border mergers and acquisitions are very important for business development, especially if the company is striving to become a world leader. First of all, taking into consideration all the theories, motives and drawbacks of M&As the strategy of mergers and acquisitions has to be carried for the purpose of creation and receiving new opportunities (competitive advantages) which are called the synergetic effects. They help the acquiring company to be more effective, increase demand and profitability. Synergetic effects result from realization of M&A strategy in various functional fields of activity of the company: organizational, production, commercial, financial, innovative, investment, speculative and the other ones that lead to growth of the company's investment cost.
Secondly, the growth of the global competitiveness level in most business spheres force companies to integrate with each other. Thereby the company, which uses the strategy of M&A deals and gets the synergetic effects gets stronger and receives a high chance to become a market leader while increasing its global competitiveness.
2. M&A Deals of The Walt Disney Company and Their Role in Increasing the Company's Global Competitiveness
2.1 The Walt Disney Company, its Activity and Main Rivals
The Walt Disney Company (TWDC, NYSE - DIS), the world's leader of the show business industry, was founded in 1923 by Walter and Roy Disney as a small animation studio. The first and the only direction of business until 1955 of The Walt Disney Company was cinema. However, today, the company is the owner of 11 thematic parks and two aqua parks, several networks of TV and radio broadcasting studios, including American ABC. Moreover Disney is the largest publisher of children's literature in the world. TWDC heads the list of distributors of video, DVD and Blu-ray production in Europe and Latin America. The video collection of TWDC totals in more than 3 thousand movies http://thewaltdisneycompany.com/about-disney/company-overview .
The company is active in 172 countries and represents 1300 radio and television channels broadcasting in 53 languages. The headquarters and the main capacities of The Walt Disney Company are concentrated in the division of the Walt Disney Studios in Burbank, California, USA.
The activity of The Walt Disney Company covers a large number of units and segments.
The Walt Disney Studios, which includes:
· Walt Disney Pictures
· Disney Nature
· Marvel Studios
· Touchstone Pictures (not under the “Disney” brand)
· WDSSPR (Walt Disney Studios Sony Pictures Releasing)
· BVSPR (Buena Vista Sony Pictures Releasing)
Sound recording labels
· Buena Vista Music Group
· Walt Disney Records
· Mammoth Records
· Lyric Street Records
· Hollywood Records
· Skywalker Sound
· Walt Disney Theatrical
· Hyperion Theatrical (не под брендом «Disney»)
· Walt Disney Animation Studios
· Disney Television Animation
· DisneyToon Studios
· Pixar Animation Studios
Parks and Resorts
Besides thematic parks and resorts (Walt Disney Parks and Resorts, Disneyland Resort, Walt Disney World Resort, Tokyo Disney Resort, Disneyland Paris, Euro Disney S.C.A., Hong Kong Disneyland Resort, Disney Vacation Club and Disney Cruise Line), this division includes Disney Regional Entertainment (which possesses a network of sports restaurants ESPN Zone), Walt Disney Imagineering and Walt Disney Creative Entertainment http://disneyparks.disney.go.com/resorts-parks-destinations/ .
Disney Consumer Products
· Disney Publishing Worldwide
· Disney Store
· Jim Henson's Muppets
· Buena Vista Games
· Disney baby
Media Networks, including:
Television for children
· Disney Channel
· Disney XD
· Disney Cinemagic
· Disney Junior
TV and radio broadcasting networks
· Disney Television Animation
· Touchstone Television
· ABC Entertainment
· ABC Television Network
· Buena Vista Television
· Lifetime Television
TWDC owns a number of networks of a cable television, including Disney Channel, ABC Family, Toon Disney, a network of ESPN and SOAPnet channels. Disney has an essential share of Lifetime Television stocks (50%), A&E Network (37.5%), E! (40%) and Jetix Europe N.V. (100%).
Through the ABC The Walt Disney Company controls over 10 local television stations, 26 local radio stations, and also ESPN Radio and Radio Disney. Buena Vista Television prepares for air such television shows as "Who Wants to Be a Millionaire", "Live with Regis and Kelly" and "Ebert & Roeper".
· Disney Internet
· Disney Mobile apps
· Disney Social Media
· Disney Virtual Worlds
· Disney Computer Games
TWSC owns the Hyperion publishing company, Internet division of Walt Disney Internet Group (WDIG) which possesses the Go.com, Disney.com, ESPN.com, ABCNews.com and Movies.com websites.
In 2009 the creation of new division of Disney Double Dare You was declared. The new division operates in production of horror films within the family cinema.
In 1931 a festival of animated films took place in Moscow, and then TWDC appeared in Russia for the first time. In 2006, the Russian office of The Walt Disney Company was opened. Today, in Russia and in the CIS countries the company develops production and distribution of movies, scenic statements, release of licensed DVDs, Blu-ray and Blu-ray 3D disks, production and distribution of television content, the Disney Channel (since October, 2011), licensing of consumer goods, publishing licensing, production and distribution of digital video, games for consoles, mobile and online games, and also develops such tourist directions such as cruises to Disney thematic parks among the Russian audience http://www.waltdisney.ru/about/russia/ .
The company is in the top-15 of the most expensive brands of the world. In the 2014th fiscal year the revenue of the company was 48, 8 billion US dollars http://www.statista.com/statistics/193140/revenue-of-the-walt-disney-company-by-operating-segment/ . The Walt Disney Company is included into the industrial Dow Jones index. Market capitalization in 2013 was about 122 billion US dollars. Shares of TWDC at the New York Stock Exchange (NYSE) are now (2014) traded at the price of 86, 27 US dollars http://www.marketwatch.com/investing/stock/dis .
Among the main competitors of TWDC used to be Pixar Animation Studios, Marvel Entertainment, Lucasfilm, Twenty-First Century Fox, Sony Pictures Entertainment, Warner Brothers, Paramount Pictures, NBC, TouchStone Pictures, DreamWorks and others, however, Disney chose M&A deals as a way to eliminate its competitors and diversify its business. Today TWDC's main competitors are: Viacom Inc., Time Warner Inc., Twenty-First Century Fox, CBS, Directiv Group, Inc. and Comcast.
Acquisition of Pixar Animation Studios in 2006 became a high-profile case. Besides, in August, 2009 The Walt Disney Company bought Marvel Entertainment. Today TWDC possesses over 5 thousand comics' characters, including Spiderman and Iron Man. In October, 2012 the company published news about the purchase of Lucasfilm together with the rights for the "Star Wars" production.
As a result of all the transactions the revenues increased significantly from $3, 43 billion US dollars in 2006 to $7, 5 billion US dollars in 2014. For such success The Walt Disney Company is obliged to its CEO Bob Iger who used M&A deals to solve the problem of shortage of fresh ideas and technologies.
It is considered that M&A deals of the companies working in the entertainment sphere rarely conduct to any changes in domestic policy. Often such companies continue to be engaged in former activity, however, they have much wider list of assets. At the same time market participants still consider that they can choose while conglomerates get advantages from a variety of their activity.
2.2 Competitiveness Growth after M&A Deals of The Walt Disney Company
All the major M&A deals of The Walt Disney Company were very successful. TWDC got not only higher profits due to the increased variety of services and new ideas and thereby higher demand, but also raised its chances to become a complete world leader in the entertainment market. Its global competitiveness grew significantly. Today The World Disney Company is a highly strong competitor and presents a serious threat to its rivals. So, in 2006 TWDC acquired Pixar Animation Studios, in 2009 Disney bought Marvel Entertainment, and in 2012 purchased Lucasfilm. The first two transactions have already proved the efficiency and success, considerably having increased level of income. The latter transaction is also expected to be extremely successful and to uplift The Walt Disney Company to the new level leaving all its competitors far behind.
The Walt Disney Company and Pixar Animation Studios
Pixar was founded in 1979 by George Lucas. It was called "The Graphics Group" as a computer division of Lucasfilm. However later he decided to sell this division to Steve Jobs: he invested more than 50 million US dollars in it. Thereby Pixar Animation Studios was born.
During the first years of existence Pixar movies deserved recognition of Oskar Film Academy; however the company didn't get high profits. Disney suggested investing in creation of the feature length animated Pixar film, however, the company refused. Later Pixar's animated film "Toy Story" came out with huge success, and Disney understood that they had a competitor.
When Bob Iger became the head of TWDC, he managed to agree with Steve Jobs about the acquisition of Pixar in 2006. Pixar kept all the creative principles of its business which allowed the company to achieve success. The Disney's profits began to increase.
The terms of the transaction were the following: on each Pixar share Disney issued 2, 3 shares of its own. That means that one stock of Pixar was estimated by TWDC at the level of 59, 78 dollars which is 3, 8% higher than its cost at the stock exchange. In total the deal cost 7, 4 billion US dollars The Washington Post: http://www.washingtonpost.com/wp-dyn/content/article/2006/01/24/AR2006012401212_2.html.
As a result Steve Jobs, the CEO of Pixar, became a large shareholder of Disney and one of the directors of the company. Jobs and the CEO of Disney Robert Iger emphasized that together they would do their best in order to make Pixar influence the creative atmosphere of The Walt Disney Company. The transaction was quite expected by everyone because Disney co-financed and distributed animated Pixar films, receiving part of their profits, for the last 12 years. Such projects as "Toy Story", "Finding Nemo", "Monsters, INC" and "The Incredibles" were made in cooperation of the two companies.
Steve Jobs said that he completely trusted Iger: "Most of the time that Bob and I have spent talking about this hasn't been about economics, it's been about preserving the Pixar culture because we all know that that's the thing that is going to determine the success here in the long run" NBC News: http://www.nbcnews.com/id/11003466/ns/business-us_business/t/disney-buying-pixar-billion/#.VPa3m00cS70 .
The leading creative persons of Pixar Animation Studios got high positions in TWDC in order not to depend on the high-ranking Disney managers and to have the opportunity to offer their own fresh ideas.
One of the main problems of Disney consisted not only in its rather obsolete technologies but also in its stories and characters which didn't please public as it was before. TWDC used to work in the old manner without understanding that such characters as the American Little Mermaid or the Russian Winnie-the-Pooh are impractical in computer animation. However Pixar Animation, sensitively feeling market situation, offers modern stories and mobile heroes organically performing in 3D. Despite shortage of kindness, touching, charm and romanticism Pixar characters win the hearts of the audience by their energy and simplicity. By means of Pixar potential TWDC got a real chance to become the engine of new animation.
The major advantage of the M&A deal is the combination of traditions and innovations. Today TWDC and Pixar Animation Studios endure the peak of their influence on the entertainment market which seems to be very stable despite the tough competition from the rivals.
The Walt Disney Company and Marvel Entertainment
Marvel Entertainment LLC, affiliated by The Walt Disney Company since August, 2009, is known around the world due to a unique set of its fictional heroes created during the last 70 years. The Marvel library consists of more than 8 000 characters, among which are Spiderman, Iron Man, X-Men, Thor, Hulk and others. The company widely uses the characters in license business (franchise), in show business (Marvel Studios and Marvel Animation) and also in publishing projects such as Marvel Comics http://marvel.com.ru/about/.
The history of Marvel Comics started in 1937. Since then the company was resold several times, often unsuccessfully. As a result in 1996 it declared bankruptcy, however, Isaac Perlmutter and Avi Arad, owners of toy producing company, managed to reorganize the company. They started selling the licenses for comics' characters with an emphasis on movies and games. Their idea consisted in bringing superheroes of Marvel out of the limits of habitual teenage audience. As a result new beloved by everyone movies appeared such as X-Men, Spiderman and others.
At the same time the company continued to sell comics, having re-write old stories for the new audience. As a result their share in the market of comics grew to 50% by 2010. Marvel easily agreed on the transaction of acquisition estimated in $4 billion US dollars. The new movie "Avengers" won deafening success and brought $1,5 billion US dollars profit to the company's new owners.
According to the terms of the deal, each shareholder of Marvel Entertainment got 30 dollars in cash and 0,745of stocks of TWDC for each share of the sold company. As the New York Times writes, the cost of the acquisition transaction was estimated at the level of 50 US dollars per share. The total cost of the deal was 4.24 billion US dollars RIA News: http://ria.ru/economy/20090831/183150001.html.
After the completion of the deal Ike Perlmutter, who works directly with global part of TWDC business, continued to control assets of Marvel in order to maximize integration of the Marvel Company.
As the Filmz.ru portal notes, for audience this transaction means, mainly, real opportunity to see all the favorite heroes in one movie. Today the screen rights for "Spiderman" belong to Sony Entertainment, the rights for "X-Men" and "The Fantastic Four" belong to Fox Broadcasting Company. Disney expects to accumulate gradually the rights for all the Marvel heroes. Moreover the audience got a real chance to see the increased number of characters brought to the large screen.
"We believe that adding Marvel to Disney's unique portfolio of brands provides significant opportunities for long-term growth and value creation" -- the CEO of The Walt Disney Company declared in the official statement http://marvel.com/news/comics/9360/disney_to_acquire_marvel_entertainment#ixzz3UZZWUOmQ. Moreover Marvel Entertainment representatives believe that TWDC will become the ideal home for the fantastic list of characters of Marvel. Besides, according to the management of Marvel, merge with the American film giant brought the company huge benefits.
"This is an unparalleled opportunity for Marvel to build upon its vibrant brand and character properties by accessing Disney's tremendous global organization and infrastructure around the world” -- the head of Marvel Ike Perlmutter commented on the transaction http://marvel.com/news/comics/9360/disney_to_acquire_marvel_entertainment .
The Walt Disney Company and Lucasfilm
In 2011, during the preparation for opening the attraction constructed based on "Star wars" movie in Disneyland, Bob Iger met George Lucas and suggested him to buy Lucasfilm. Having remembered how Iyger managed his former company Pixar, Lucas agreed on a deal, but under the condition that there will be one more “Star wars” trilogy. Moreover, Lucas wanted to have the right to vote in everything connected with the usage of the brand. Iger insisted on TWDC's interest. Negotiations lasted for half a year.
Finally, according to the deal concluded on October 26, 2012 The Walt Disney Company bought Lucasfilm for 4, 05 billion US dollars. Half of this sum Disney paid in cash and the rest part - for 40 million company's shares. The media giant got Lucasfilm with all its divisions (IL&M, Skywalker Sound, etc.) and brands (primarily the Star Wars brand). The M&A deal was approved by both boards of directors and also by the only shareholder of Lucasfilm George Lucas.
Cathleen Kennedy was appointed the president of Lucasfilm and took the role of the brand manager and executive producer of future "Star Wars" films whereas George Lucas now acts as the creative consultant. The movie "Star Wars: Episode 7” is planned for 2015. It is expected that the "Star Wars" saga will proceed with new movies which will develop the franchise further. According to the press release on the official Star Wars site, the work on new movies is already on the go. The correspondent of TF.N reports that new movies should be expected with an interval of 2-3 years and also there will be something for television http://www.starwars.com/news/lucasfilm-disney-more-star-wars-and-great-times-for-fans .
George Lucas considers that it is high time to transfer "Star wars" to the new generation of film directors: “I've always believed that Star Wars could live beyond me, and I thought it was important to set up the transition during my lifetime. I'm confident that with Lucasfilm under the leadership of Kathleen Kennedy, and having a new home within the Disney organization, Star Wars will certainly live on and flourish for many generations to come. Disney's reach and experience give Lucasfilm the opportunity to blaze new trails in film, television, interactive media, theme parks, live entertainment, and consumer products " http://thewaltdisneycompany.com/disney-news/press-releases/2012/10/disney-acquire-lucasfilm-ltd .
2.3 Contribution of TWDC's M&A deals to its global competitiveness