Rivals feel heat from Marvel-Disney deal

DreamWorks shares up 6.5% following Disney deal

NEW YORK -- Disney's planned acquisition of Marvel throws a lot of balls up in the air -- for others to catch. DreamWorks Animation, one of the rare remaining publicly traded studios with a track record of success, might very well be advantaged by the buyout, while Viacom and its Paramount Pictures studio as well as the cable joint venture between Discovery and toy giant Hasbro could be disadvantaged.

DWA shares got a boost Monday from Disney's play for Marvel as the stock finished up 6.5% at $33.76 after hitting a 52-week high of $34.26.

Goldman Sachs analyst Ingrid Chung reiterated her "buy" rating on DWA, arguing that "the strategic value of DWA is highlighted by the Marvel acquisition." She also boosted her price target on the stock by $2 to $38 "to incorporate a 35% chance of a take-out (versus 20% previously) at a 35% premium (versus 25% previously)."

Chung argued that DWA would be attractive to a U.S. entertainment player or foreign studio without CGI animation capabilities. Time Warner has been considered a lead candidate to buy DWA.

"DWA is a logical target," Miller Tabak analyst David Joyce echoed while pointing out the company's distribution relationship with Viacom.

The first major entertainment industry acquisition of the year comes amid a prolonged M&A slump because of the recession, credit crunch and longer-term decline in sector valuations. Naturally, Wall Street immediately began to debate whether investment bankers may benefit: Several concurred that while the Marvel deal might have broken through psychological barriers, it is unlikely to open the M&A floodgates.

"I find it a positive that a deal has been announced in the space," Natixis Bleichroeder analyst Alan Gould said. "I am not expecting a wave of deals, but I do think this announcement bodes well for DWA."

Wedbush Morgan analyst Michael Pachter also said he does not expect "a wave of deals" but rather "a slow drip." He said a media company could buy Electronic Arts, for example, which is close to the same valuation as Marvel.

UBS analyst Michael Morris, however, said he sees "negative read-throughs" for Viacom, Discovery and Hasbro.

"Viacom is unlikely to retain distribution rights to Marvel films after the agreement" that covers five more releases, he said. "Discovery/Hasbro's new cable network joint venture was expected to include some Marvel programming, which seems less likely now."

Goulder, meanwhile, said the Marvel sale could help Time Warner highlight the value of its DC Comics unit, although he said it has not been as successful exploiting its secondary characters.

It was not immediately clear how the Disney-Marvel marriage would help Disney on the theme parks side, though competitor NBC Universal said it feels good about its own position.

NBC Uni's theme park unit has a licensing deal with Marvel that is visible in a Spider-Man attraction in its Osaka theme park in Japan and its Islands of Adventure at the Universal Orlando resort, where Marvel characters play a key role on the Marvel Super Hero Island. It includes "The Amazing Adventures of Spider-man" 3D ride, the "Incredible Hulk Coaster" and "Dr. Doom's Fearfall," plus a plethora of Marvel characters, including Wolverine, interacting with visitors.

"Our agreement with Marvel stands for as long as we follow the terms of our existing contract and for as long as we want there to be a Marvel Super Hero Island," a Uni spokeswoman said.

But Disney is believed to have the right to create theme park rides with characters with which Uni doesn't have park offers in existence or in the planning stage.

As for video game firms, it will take a few years before they'll feel any effects of the Disney acquisition.

Game licenses will come up for renewal between 2011 and 2017, according to Pachter. Activision Blizzard has its hands on "Marvel Ultimate Alliance" and "Wolverine" games through 2017; Sega has the "Iron Man" and "Thor" licenses; THQ has rights to "Marvel Superhero Squad."
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