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Forget Activision, Disney Should Buy These Companies Instead

James Brumley

Just a few days ago Nick Licouris, an investment advisor with wealth management form Gerber Kawasaki, posed an interesting idea: that entertainment giant Walt Disney (NYSE:DIS) should acquire video game name Activision Blizzard (NASDAQ:ATVI).

Forget Activision, Disney Should Buy These Companies Instead

Source: Richard Stephenson via Flickr (Modified)

It was a semi-self-serving suggestion. Gerber Kawasaki holds 90,000 shares of ATVI in its portfolio and would enjoy the upside of an offer that would almost certainly be above ATVI’s current price near $48.

The deal would also be something of an accounting wash, however, in that Gerber Kawasaki also holds 152,000 shares, or $22 million worth, of Disney stock.

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The upside would be the synergy created in such a pairing. Not only could Disney readily leverage a large library of film and television characters ranging from Mickey Mouse to most of Marvel’s superheroes to Star Wars icons, such a move would plug Disney directly into a fast-growing eSports market that could use some Disney-like polish. The video game market is, Licouris points out, a $152 billion market — an opportunity Walt Disney might want to mull now that a 23-film series featuring most of the Marvel universe is winding down, while the marketability of its Star Wars film franchise remains in question.

Activision is hardly the only possible purchase Walt Disney may want to consider, however, if it wants to continue building the value of Disney stock.

Acquisition Targets That Aren’t Crazy

Don’t read more into the message than is intended. These are only musings — a “what if” exercise, mostly for fun, at a time of year when little else is going on. They’re far from predictions.

Nevertheless, like the idea of adding Activision Blizzard to the fold, three more possibilities also have a compelling ring to them.

1.Electronic Arts

It seems obnoxiously similar to Licouris’ idea of acquiring Activision, but there would be a distinct advantage in scooping up Electronic Arts (NASDAQ:EA) instead. EA is the name behind some of the most popular Star Wars game titles, as the company has licensed many of the characters and worlds. A full-blown collaborative effort could make future titles even more potent, leveraging deliberate tie-ins.

There’s also the possibility that, if it wanted to, Disney could do more with Electronic Arts’ popular sports games — like Madden football and its FIFA line — on the eSports front than EA is doing for itself. The most popular eSports platforms are fantasy and fighting games, but actual sports games could attract a larger eSports crowd with a different sort of marketing approach. Indeed, perhaps some sort of partnership with its struggling ESPN brand could salvage the beleaguered sports channel.

2.The Toys R Us Name

The iconic toy store chain folded for good in June, when the last of its remaining units shut their doors for the last time. Many of them did so months ago, however, after the privately-owned company succumbed to insurmountable debt. It’s still a well-known and well-loved brand name, though, and certainly up for grabs to a willing bidder.

This premise begs one key question: Why would Disney fare any better in the toy store business than its predecessor did?

There are multiple answers, chief among them being Walt Disney has the financial wherewithal to fund inventory, remodels and operations.

More than that, though, Disney has proven it knows how to turn a simple visit to a store into a full-blown experience not unlike the experience guests enjoy at its hotels, resorts and theme parks. It’s already doing so in its Disney-branded stores. If it could replicate that overarching experience on a larger scale and strip away the warehouse-like feel of its stores, Toys R Us could be reborn as an exciting destination that could compete with Amazon.com (NASDAQ:AMZN) and Walmart (NYSE:WMT).

3.Mattel

Finally, contrary to comments from MGA Entertainment CEO Isaac Larian after his organization failed to make a successful acquisition bid for the toymaker, Mattel (NASDAQ:MAT) can be salvaged. Not unlike Toys R Us a year ago, it just needs the right help.

Disney is positioned to provide that level of help. It’s in the toy business already, and even names Mattel as a licensee partner. Some say a recent deal with Disney’s Pixar could even be the very growth engine Mattel needs to restore its former glory.

That opportunity is relatively small in scale, though. With a better-managed brand that offers more control of the toy market, Disney could shape and reshape much of the toy landscape in a way that serves it better.

Looking Ahead for Disney Stock

Again, owners of Disney stock hoping any of these deals are going to happen may not want to hold their breath. Like economists predict far more recessions than ever actually take shape, most potential acquisitions never transpire. It’s unlikely any of the aforementioned pairings will ever become a reality.

Still, it’s fun to think about, particularly as we move into a period where Disney’s big growth drivers are unclear. As exciting as the planned launch of Disney+ already is, at a price of $7 per month, it’s not a game-changer for the company. As that reality becomes evident on the top and bottom lines, some sort of dealmaking next year becomes at least a little more plausible.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.

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