Here's an idea for you: Disney (NYSE: DIS) should consider buying Electronic Arts (NASDAQ: ERTS). No, I didn't come up with the concept. It came from Martin Peers over at The Wall Street Journal (subscription required). Although this is an interesting idea, I can tell you that as a Disney shareholder, I absolutely disagree with it. In fact, I have to wonder if any Disney shareholder in their right mind could possibly be supportive of such an idea.
Buy EA? The author must have been kidding, right? Honestly, that would be one of the worst things that CEO Bob Iger could do. I really don't think it would happen, but then again, I never thought we'd see a hellish financial implosion based on a crisis of confidence precipitated by the popping of a housing bubble to end all housing bubbles.
Yep, strange days beget strange things, and the notion that the Mouse should invest in EA is perhaps one of the stranger beasts to walk Wall Street. Although the author does make a case that EA is cheap, I shudder to think about how Iger would possibly integrate the publisher into his conglomerate. Disney already has made significant investments in the video-game industry, and many of the games that the company releases are based on intellectual properties that have already been incubated in other parts of the business. Imagine if Disney had to deal with a larger, more complex pipeline, one that would obviously contain a lot of properties that could not be used in, say, the theme parks or by the movie studio. Personally, I think it would be a distraction to Disney.
And I look at video games, for the most part, as a way for Disney to extend a franchise via merchandising. I just can't see shareholders benefiting in the reverse. Sure, you can start a franchise with a video game and then make a TV show out of it, but I just don't think Disney needs to spend a lot of money purchasing a big video-game company to accomplish such a feat. Besides, I've been wondering lately if Disney maybe should slow down its video-gaming ambitions. I like the long-term thesis of gaming, but I think other areas of the Disney empire might make better use of some of the capital going to this area.
EA's market cap is about $7.4 billion. You know, I can see why Iger used billions of dollars of Disney stock to snag Pixar, but EA just wouldn't provide the same kind of synergy. It would basically amount to a value investment in the video-game industry. It would essentially mean that the Mouse would rather change strategies and just buy a publisher as opposed to support its own publishing endeavors. It would mean the last few years of gaming investment have been a colossal waste of time.
Gaming site Kotaku.com gave a positive spin to this hypothetical merger, but I think it clearly underestimates the integration quagmires that would ultimately develop. And consider the following: Disney spent good money getting together with Pixar, and the stock has yet to rocket to historical highs post that transaction. Why on earth would adding EA to the magic kingdom be good for the stock? Seriously, Disney is, by many accounts, a decent value. Problem is, it's been a decent value for a long time. The stock just hasn't gone anywhere for what seems like an eon. And I'm supposed to believe that a down-on-its-luck EA is my ticket to equity riches? Again, I don't think this will ever, ever happen, but I just have to say that it makes me scared simply thinking about it.
Disclosure: I own Disney; positions can change at any time.
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