Will Apple Buy Disney?

Since Bob Iger’s much-lauded return as the CEO of Disney, rumors have swirled about the possibility of the massive entertainment business being acquired by Apple.

Though Iger has publicly denied these rumors, analysts and investors continue to speculate about the possibility of the two giant companies joining forces.

Here, we examine the cases for and against an Apple acquisition of Disney.

The Long Relationship Between Apple and Disney

To fully understand the case for Apple buying Disney, it’s first important to examine the relationship the two behemoths have had up to this point. This relationship goes back to Apple founder Steve Jobs, who sold his majority stake in Pixar to Disney in 2006.

As part of the deal to sell Pixar, Jobs gained a seat on Disney’s board of directors. Jobs is known to have enjoyed a good working relationship with Iger, creating a connection between the two companies that continues to this day.

Understandably, Iger’s closeness with Apple drove rumors of a possible sale when he returned to his former post as CEO.

These rumors were started when an anonymous supposed insider told reporters of an alleged Iger plan to sell the company. As of now, however, these claims remain unverified.

The Argument for Apple Buying Disney

On paper, the argument for an Apple purchase of Disney is quite strong. The driving force behind this argument is Apple’s need for content for its newly-announced Vision Pro VR headset.

With an expected price tag of $3,500, the headset could be a hard sell to consumers and an expensive gamble for Apple. And control of Disney’s production studio means Apple could generate proprietary content for the Vision Pro to hasten adoption.

The resulting device sales could massively benefit Apple, especially as its flagship iPhone rapidly nears technological maturity.

It’s worth noting that control of a production studio like Disney’s could help Apple avoid the problems that have plagued other VR headsets. A lack of platform-specific content is widely cited as one of the obstacles holding virtual reality technology back.

Unless Apple can solve this problem, its Vision Pro may join many other costly headset projects as technologically interesting devices that proved to have little real appeal to consumers. With the most experienced animation teams in the world and time-tested workflows for production at its disposal, Disney would be a nearly perfect solution to this problem.

In the process, Apple and Disney would also form an entertainment ecosystem that would be unmatched in scope. Roughly 19 percent of the entire global population currently have iPhones, allowing Apple to distribute content to a potential customer base of over 1.3 billion people.

As sole owner of this content, Apple could generate enormous revenues through advertising and subscription payments. By buying Disney, Apple would also gain access to an enormous catalog of existing intellectual properties that it could profit from.

Apple is also in a strong financial position to buy Disney. The entertainment company’s market capitalization has fallen to $168 billion due largely to low post-pandemic earnings.

Apple, by contrast, is valued at an astronomical $2.85 trillion. As such, Apple is one of the few companies that could seriously consider purchasing Disney without overextending itself. Apple currently has about $55 billion of liquid cash on hand, meaning that it could finance a sizable portion of the acquisition out-of-pocket.

A final point in favor of the deal is the enormous advantage the combined Apple and Disney would have over the streaming services that currently compete with Disney+. Combined with Apple’s distribution network, Disney could emerge as the clear victor of the so-called streaming wars that have pitted rival content companies against one another over the last several years.

Don’t Expect an Offer Anytime Soon

While there are strong business and financial arguments in favor of Apple buying Disney, investors would be unwise to expect the companies to join forces anytime soon. The most obvious reason for this is the fact that Apple would see a nearly immediate reduction in its margins after buying Disney.

Compared to Apple’s trailing 12-month net margin of 24.5 percent, Disney’s is a paltry 4.7 percent. While this slim margin has contributed to Disney’s discounted price, Apple would have to carefully consider the short-term impact it could have on its own share prices in the event of an acquisition.

Apple could also encounter structural problems as it attempted to integrate Disney into its operations. Despite being dwarfed by Apple, Disney is still a massive business with its own unique culture and internal systems.

Apple is first and foremost a hardware manufacturer that is engaged in an entirely different business than Disney’s. As such, combining the two companies could be an extremely difficult and costly logistical challenge.

Even if Apple decided to make an offer for the entertainment giant, the current regulatory climate could imperil the deal. Regulators under the administration of President Joe Biden have filed complaints against mergers and acquisitions among large companies at roughly double the average historical rate.

A deal between Apple and Disney, both among the 40 largest US companies by market capitalization, would almost certainly trigger such a complaint and draw both businesses into a lengthy, expensive and ultimately uncertain approval process.

Another consideration that could block such a deal is opposition from Disney and its shareholders. Although share prices are down more than 50 percent since 2021, analysts expect the stock to rebound as park revenue recovers and the company’s own acquisitions bear fruit.

Even though Apple would have to pay a premium to Disney’s shareholders to buy the company, that premium would likely be less than what the shareholders would realize during a potential stock recovery.

Taking all of these factors into account, it seems very unlikely that Apple will make an offer to purchase Disney in today’s market conditions. Such a deal would tie up too many of Apple’s resources, invite regulatory challenges and likely face stiff opposition from Disney’s own shareholders.

Given that Disney+ content is already expected to feature prominently in the Vision Pro ecosystem without direct ownership, the cumulative cost to Apple of buying Disney would likely outweigh the benefit.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.