'Avengers' Silences Critics of Disney's Marvel Deal
When Disney announced nearly three years ago that it had agreed to acquire Marvel Entertainment for $4.3 billion, some in the industry and on Wall Street fretted that the price was too high, given that it represented a 29 percent premium on a stock that already was trading near a 52-week high. Shares of Disney fell 3 percent that day, and Standard & Poor's placed the company's credit rating on its negative watch list.
"There was a huge amount of pessimism" about the deal, recalls Tony Wible of Janney Capital Markets. "Now it looks like Disney might have underpaid."
What a difference a record-shattering opening makes. The Avengers earned $207 million domestically during its first weekend and crossed the $1 billion global mark in only 19 days. Disney stock was up 6 percent from the film's domestic bow through May 14. Now Wible thinks Disney chief Bob Iger's purchase of Marvel was smarter than his 2006 acquisition of Pixar for $7.4 billion. "They're just scratching the surface with the amount of intellectual property they have with Marvel," says Wible. "It's broader and deeper than people appreciate, and Disney will push that brand into TV, theme parks, cruise lines and merchandising."
A veteran industry executive agrees. "There are not only going to be three or four sequels to The Avengers, but this builds up the brand equity of all the characters in the movie," he says. "Mark Ruffalo actually has a shot at a Hulk movie. It's clear it was a good purchase."
On May 14, Wunderlich Securities analyst Matthew Harrigan sent clients a 32-page note about Disney titled, "Marvel Acquisition Suddenly Thor's Hammer." In it, he called Marvel (along with Pixar) "the bedrock for the studio," which he said "could credibly return up to $1 billion" in annual profits. He also called Marvel Studios head Kevin Feige "a top contender" to replace departed studio head Rich Ross. (Feige told a Bloomberg reporter May 12 that he has "got a very good job right now.")
Iger still faces significant challenges at the Disney studio, which suffered a $200 million write-down and the dismissal of Ross in the wake of John Carter. The CEO is seeking new film leadership amid plenty of industry criticism concerning Disney's limited home-grown slate.
But the Carter write-down looks far less painful through the lens of Avengers, which will throw off profits during the next few quarters and fuel licensing and theme park revenue (a Marvel-centric attraction is said to be under consideration for Disney's planned Shanghai park). More important, says BTIG analyst Richard Greenfield, "the key for Disney is that the film studio is not the be all, end all. The real driver of Disney and the reason it's been on a tear is that its brands are increasingly powerful."