M&A Deals as an Instrument that Ensures Global Competitiveness. The Example of Disney Media Conglomerate

· All the companies have to be traded on the stock market.

All the financial data was taken from the companies' Financial Reports and values were calculated according the DCF method, observed previously when the values of the Walt Disney Company and Activision Blizzard, Inc. were calculated.

Table 17. The Results of M&A Deal between Sony Corp. and Evolution Studios (in bil. USD)

Table 18. The Results of M&A Deal between TWDC and Playdom (in bil. USD)

Table 19. The Results of M&A Deal between Microsoft Corp. and Press Play (in bil. USD)

After observing the revenues, net incomes and value of the acquiring companies before and after M&A deals (year before and year after the deal) the average margin was calculated.

Table 20. The Average Margin in Revenue, Net Income and Value of the Acquiring Companies a Year after the Deal (%)

Afterwards, we applied this correction to The Walt Disney Company and got the anticipated value of the company after the acquisition of Activision Blizzard Inc. and calculated the synergetic effect after the acquisition, taking into consideration the anticipated premium and anticipated expenses on the deal.

To calculate the premium for the M&A deal we will use the premium which selected the Vivendi Games Company upon purchase of a controlling stake of Activision Blizzard in 2007. That is the current stock price of the company plus 24% . As of May 15, 2015 the price of one share of Activision Blizzard Inc. is 25.42 US dollars. Thus, if Disney wants to became the holder of a controlling stake of the acquired company (we will assume that it will be 52% of AB shares), it will pay a premium of 2,3 billion US dollars from a total cost of the transaction which according to our calculations will make 11,9 billion US dollars.

In accordance with EY Company's report http://www.ey.com/RU/ru/Newsroom/News-releases/EY-News-corporates-underestimating-costs-of-post-merger-integration , the average value of expenses on integration of business after M&A deal completion is 14% from the total cost of the deal. That is why we assume that integration expenses will be 1.67 billion US dollars.

Table 21. Synergetic Effect for TWDC after M&A Deal with Activision Blizzard (in bil. USD)

After all the calculations the estimated revenue will make 58.58 billion US dollars, 17% greater than the revenue in 2014, and the anticipated net income will compose 16.65 billion US dollars, which is 22% more than in 2014. The synergetic effect turned out to be 25.43 billion US dollars, which is a very good result. Thus, we proved that Activision Blizzard Inc. suits for TWDC's acquisition and is able to increase the global competitiveness of The Walt Disney Company in the entertainment market. According to the nature of integration this M&A deal will be considered as horizontal, according to the nationality of merged companies it will be a national deal and according to the relationship between management the deal will be a friendly one.

To sum up, we are quite sure that the M&A deal between The Walt Disney Company and Activision Blizzard Inc. will bring not only economic benefits to Disney such as income growth, but also will give it new technologies, experience and increase its share in the video game market. Having increased its share in this market, TWDC will be able to increase the influence in the whole entertainment market and respectively will manage to increase its global competitiveness. Thus, The Walt Disney Company will become an even stronger player in the entertainment market, having overtaken its main competitors.

Conclusion

Recently there has been a significant increase in number and volumes of mergers and acquisitions transactions in the whole world including Russia. Integration processes change structurally, high number of regions is involved in them, and scales of international transactions extend. For business community these processes have clear logic as they assume obvious economic motivation: expansion of sales markets, production synergy, financial benefits, which are factors conducting to increase in cost of equity and increase in influence of the company in the market in which it functions.

Though, not all the M&A deals are successful and bring benefits to the acquiring company, there is a number of deals that prove that if a company uses correct and rational evaluation of future transaction, namely valuation of the target company and future economic benefits, M&A deal can considerably improve the competitive position of the company as, for example, it was made by The Walt Disney Company.

Global competitiveness is the ability of companies to compete in international markets and M&A deals are a good instrument that is able to improve its position in the market where the company functions and to overcome its global competitors. Using the example of The Walt Disney Company we proved that availability of competitive advantage, above-average management and market leadership plus properly prepared and implemented M&A deal may result in the increase of company's global competitiveness and its influence in the market.

TWDC had three high-profile M&A deals and each of them was extremely successful and brought a number of significant advantages to the company. Moreover, these deals helped Disney to increase its global competitiveness and increase its market share in each segment the company operates in. Apart from positive economic results, such as revenue, profit and share price growth, The Walt Disney Company managed to diversify its business, attracted new audience, got new skilled managers and increased its influence in the entertainment market. However, today Disney is not the unambiguous leader in four of five segments in which it operates. We suggested improving the weakest and newest segment, Interactive Media, which in our opinion can play an important role in successful activity of the company and will be able to increase its global competitiveness considerably. This segment does not occupy even the tithe of the Interactive Media market but it is very perspective because of general addiction to video games both online and on game consoles and phones.

It is important to notice that the main competitors of The Walt Disney Company, Viacom, Time Warner Inc., Twenty-First Century Fox, CBS, Directiv Group, Inc. and Comcast, also have quite poorly developed Interactive Media segment. Therefore if Disney starts acting now and will redeem the main companies that produce video games, it won't leave any chance to its competitors and will be able to compete with the companies for which this activity is the main one.

We proved that Activision Blizzard Inc. suits well for M&A transaction with Disney as it is capable to bring significant benefits to the company such as synergetic effect, which is the most important motive when a company choses M&As as a method of integration. The synergy is a result, which each company seeks to reach in order to enter the world market and to take the leading positions in it. So, having estimated the synergy, we made a conclusion that this effect is possible to be obtained and it is quite big. Also, using the identical transactions in this branch, we estimated that in a year the revenue of the company has to grow by 20%, the net income has to increase by 28% and the value of The Walt Disney Company has to extend by 26%.

The main strength of Activision Blizzard Inc. is that the company is very influential in its segment of the world market and in each region. Activision Blizzard's positions are very strong in the Asian countries where Starcraft and World of Warcraft games became super - hits. Moreover, AB creates console games for Microsoft Xbox 360, Sony PlayStation 3 and Nintendo Wii, which are traditionally popular in Europe and the USA.

Thus, the hypothesis of this paper (Disney Conglomerate uses the strategy of M&As successfully, which helps it to increase significantly its global competitiveness in the entertainment market) is approved. The main goal, which is identification of Disney's M&A deals' input in the company's global competitiveness and making suggestions on making the company the world leader in entertainment market using M&A deals, is reached.

The Walt Disney Company has to continue to win the entertainment market using mergers and acquisitions transactions and then it will increase its global competitiveness even more and will get the real chance to become the leader in each segment of its activity.

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