Will Disney bid on MGM?

[fklhou]

MGM has hired Goldman Sachs and is exploring a sale (he wants $7 billion but most analysts see the price being closer to $5.5 to 6 billion).. Evidently, Kerkoviam is willing to take shares for tax reasons. See http://dailynews.yahoo.com/h/nm/20020116/en/industry-mgm_4.html If Disney is worried at all about a hostile takeover, one way to make it more difficult to be taken over is an acquistion using your stock. This increases the number of shares outstanding and in this case, a large block could be placed in "friendly" hands, i.e. subject to a standstill or lockup agreement with Kerkovian.

If Kerkovian is willing to lockup any shares he receives in a merger of MGM and Disney and otherwise agree to be friendly to current management, I would not be surprised to see a Disney/MGM merger take place with Kerkovian getting much more than MGM is worth. Kerkovian may be willing to agree to such restrictions if he gets his price (i.e. if Disney over pays).

 

[YoHo]

Hmmm, What would it mean for the Disney/MGM studios?
Lower or zero prices for the MGM film Library?
I see Double win here.

 

[fklhou]

The film library is the main asset of MGM and is very valuable. Just not $7 billion valuable. Would Eisner overpay for MGM just to keep Disney out of the hand of Bill Gates?

 

[OnWithTheShow]

I think this would be a beneficial purchase for Disney. (I believe it would be a purchase not a merger.) When you think about the liscensing fees, longterm, for MGM's library of films has a lot of value. Also if Disney chooses they can broadcast the movies on ABC thus reaping the rewards from advertising dollars. It is hard however to put a value on this, I am sure they have analysts looking. Something may already be in the works considering ABC is now starting to show the James Bond movies (an MGM franchise).

 

[Another Voice]

Disney is not considered a real player in this one. It lacks the cash and credit to compete with AOL TimeWarner and Viacom which both want the film library; and with NewsCorp which wants MGM's franchise films to bolster 20th Century Fox.

 

[larworth]

Don't several of these suitors have "financing" issues, with their own recent M&A deals that still have not yet paid for themselves?

I assume the value associated with any MGM theme park synergy pales in comparison to the value associated with the library and consolidating studio operations. These would have to pay for the deal. So, assuming they could find a way to make it work, and the price was right wouldn't this be a reasonable strategic move?

At least they would have something else to consider in those "static" or "the chair" program meetings.

 

[fklhou]

Again, if MGM is willing to do a stock deal, then financing is not a serious issue so long as Disney is willing to pay the price being asked by Kerkovian or something close to the price. It is clear that there is value to MGM but is it $7 billion worth of value.

The cynical question that I was proposing is does anyone think that Eisner and company might be tempted to overpay for MGM if this would make if more difficult for anyone else to make a run at Disney?

 

[Another Voice]

All of the major media players have some level of problems with debt load, but none are as bad of shape as Disney (limited cash, large debt, falling earnings, and a lowered credit rating). The film libraries are much more valuable to the companies that have a lot of distribution channels: TimeWarner, Viacom, Vivendi/Universal. Disney’s three outlets are trivial by comparison. MGM doesn’t own a studio lot so there aren’t any cost savings there. And theme parks rights at the moment are so unimportant that they won’t even be discussed by the parties involved.

Disney, if it got into the bidding, would simply be out-played within one or two moves no matter what game The Mouse thought it was playing.

 

[wdw4us2]

I'm a little confused here - I thought that Ted Turner (now AOL Time-Warner) already owned the film library. I believe this was done a number of years ago, and that's what Turner used to start his Turner Classic Movies channel. If that is the case, then I don't think MGM would be such a great purchase. Maybe someone on here knows the facts about the film library?

 

[larworth]

Another article I read said Kerkovian repurchased the bulk of the library not too long after the original Turner purchase. With Turner keeping a few hundred movies, including a few of the more notable titles (like Gone With the Wind).

If others can extract more value, than Disney would have to overpay. I’m not convinced that they couldn’t find a way to do a deal, but I don’t see them taking the risk as an anti-takeover ploy. AV, you seem to be painting an even bleaker picture than usual these days. Sounds like you are more worried about Disney getting a call from Kervorkian than Kerkovian.

Scoop. Iger claims ratings are already up at ABCFamily? I would have to see their business case to know if they overpaid or not (for some reason they keep ignoring my requests). However, if you say it is already clear they overpaid, with the ink barely dry on the deal, than I wouldn’t score this as one for the Hindsight column. I would have to put it in another column.

 

[Another Voice]

“AV, you seem to be painting an even bleaker picture than usual these days.”

I’m sure everyone knows the cliché about great people rising to greatness at the moments of greatest peril. After the start of the war on September 11, there was a surge that swept through The Company. It was a urging for Disney to rise again like it had done in troubled times in the past; for the first time in a long while people had a sense of purpose, of mission, of drive.

Everyone except the senior management.

Not every man can rise to the occasion; and the cool, calm, calculating suits of The Company have decided they are unable or unwilling to meet the occasion. They have chosen to believe numbers typed onto spreadsheets rather than to believe their own customers. They spout banal bullet points and pretend it forms a coherent vision. And they think announcing a plan of action is the same as having a successful plan of action. Safe, cool, calm, conservative, nothing risky, nothing upsetting.

These people are scarred. They know the challenges that face them are beyond their ability to solve. They’ve become sheep. Which is fine as long as you’re in a world of nothing but sheep…

 

[raidermatt]

AV- Clearly, I'm not in a position to dispute your knowledge and insight into the current situation. I find it hard to believe that things can be as bad as you proclaim, but I certainly do not have the proof to back it up. What I can say is that if your analysis is true, and barring a management change, its not going to take very long for this company to to go into a complete freefall. There is no real hope for any of the divisions. There are only isolated pockets of optimism such as Lilo & Stitch, and possibly whatever Pixar produces.

So over the next year, possibly two:

-ABC will have become the #5 network, or at best, remain #4.
-ABC Family will have become an undeniable bust
-The movie studios will have failed miserably
-DCA will have made little progress, adding only off the shelf stuff and a scaled back ToT
-The other domestic theme parks will continue to flounder, adding only off the shelf stuff, including AK
-Virtually no content of value will have been created anywhere
-The Disney Stores will continue to flounder

Have I left anything out? This is not to be meant as sarcasm, and again, I am not disputing your insight. Rather, I'm just trying to get a consolidated, specific overview of where you think the company is going. If all of this is to come to pass, I can see no other possibility other than a takeover or firesale, and in a not too distant timeframe (2 years max).

 

[DVC-Landbaron]

I agree with your consolidation. And I don't take it as sarcasm at all. Quite the contrary. It just more of the same from a business philosophy that doesn't understand it's own business!!

In other words, lets look at the list in a slightly different way. How about turning the clock back a year and only slightly changing the wording of your list to reflect the time period.

2002 - ABC will have become the #5 network, or at best, remain #4.

2001 - ABC's millionaire bubble will burst and the ratings for the network will drop like a rock.

Not much of a change, only a "how low can they go" kind of thing.

2002 - ABC Family will have become an undeniable bust

2001 - Disney will acquire FOX Family.

Who would have thought it? Who knows why?

2002 - The movie studios will have failed miserably

2001 - The movie studios will have failed miserably

YEP! Sure did!!

2002 - DCA will have made little progress, adding only off the shelf stuff and a scaled back ToT

2001 - DCA will be a total failure and no amount of quick fixes and sales incentives will help!

Remember all those threads a couple weeks before the opening? Looks like the doom & gloom set were right after all.

2002 - The other domestic theme parks will continue to flounder, adding only off the shelf stuff, including AK

2001 - The other domestic theme parks will continue to flounder, adding only off the shelf stuff, including AK

No Change!

2002 - Virtually no content of value will have been created anywhere

2001 - Virtually no content of value will have been created anywhere

No Change!

2002 - The Disney Stores will continue to flounder

2001 - The Disney Stores will continue to flounder

No Change!

Kind of sad when you look at it this way, isn't it?

 

[Another Voice]

Last year at this time:
ABC was the number one rated network
‘Pearl Harbor’ was picked by most industry people as the “#1 movie of the upcoming year”.
The hype for ‘Atlantis’ was already in full swing (my local Disney store already had the toys in stock)
Disney and the city Anaheim were frantically buying up land for additional parking to handle the overflow crowd from the soon-to-open California Adventure.
Disney Animation felt like it was getting its legs back after the successes of ‘Tarzan’ and ‘Emperor’s New Groove’.
Disney executives were publicly insulting the Oriental Land Company for spending too much money on DisneySea.
A massive restructuring and remodeling plan for The Disney Stores was being implemented.
Disney was rumored to be in talks to takeover Yahoo and/or EchoStar and/or Direct TV and/or half a dozen other major companies.
‘Shrek’ was mentioned, if at all, as a minor kid’s movie release from Dreamworks.

A lot can happen in a year, can’t it?

There were warning signs – ABC’s ratings were based on only one show, many people were already calling California Adventure a major misstep, people in Animation were complaining (loudly) about trouble, among others.

The problem isn’t that Disney CAN’T do anything right – they so obliviously can. DisneySea is a creative and financial success beyond imagination. ‘Princess Diaries’ and ‘The Royal Tannebuams’ show that the company can support good movies as well.

The problem for the upcoming year is that Disney WON’T TRY to do anything right. The Company has simply stopped. Their plans from the past have failed, but they won’t try anything different. Their fear of risk has turned into a paralysis where the corporate wisdom is that to do nothing is better than to attempt anything.

That’s the cause of the clouds. An entertainment company needs new product, it needs to continually generate a sense of excitement. Disney is doing nothing – no new product, nothing exciting on the horizon. The entire business plan is to cut and shrink itself and to slap its name on breakfast cereals and carnival rides. That has never been the road to success.

P.S. Mr. Scoop – this year is pretty much seen as really, really, really, really bad for Disney Studios. It lost the number one ranking (mostly ego, but there are some benefits there), it’s big, big movie bombed big, big at the box office. It’s other “can’t miss” movies – ‘Atlantis’ and ‘Scary Movie’ – also tanked. And most importantly of all, Disney lost it’s hold on the animation genre. A number of studio management were sent packing. Success is measured in more than just raw box office numbers.

 

[raidermatt]

It lost the number one ranking (mostly ego, but there are some benefits there), it’s big, big movie bombed big, big at the box office. It’s other “can’t miss” movies – ‘Atlantis’ and ‘Scary Movie’ – also tanked.

I don't have the historical data, but unless Disney has always held the #1 ranking, not being number one this year is hardly an automatic death knell. Again, Pearl did not bomb. $198 million in domestic box office alone is not a bomb. We can go round and round about Disney "expecting" it to be #1, but if it were as simple spending $120 million and expecting to make $300 million, everyone with the capital would do it. The fact that some considered a film to be can't miss does not doom the studio if it does miss. The surprise hits still kept the studio at #3.

And most importantly of all, Disney lost it’s hold on the animation genre.

One success in a genre from a studio that has seen little more than box office mediocrity in that genre does not give them a hold. Should Disney be concerned? Absolutely. But if one hit from another studio is the definition of losing its hold, it has happened before. Monsters maybe from Pixar, but

Regarding ABC, no arguements on the failure of past strategy. I still find it hard to believe that ABC is doomed to be no higher than 4th going forward, but that will play out soon enough. They do have a few newer shows that are doing well (Alias, My Wife and Kids), so we'll see.

 

[Another Voice]

But we’re talking about Hollywood here, not the normal world. In this town, perception IS reality.

Being the top studio is important (as Disney has been two out of the last three years, and been number 1 or 2 in the last five) because it gives the perception of success. That lures top talent, the makes it easier to book theaters, it makes it easier to hype movies. A perception of success also creates an anticipation for success as well.

Not meeting the anticipation is really the same thing as failure in town. Again – this is not the normal world. ‘Pearl Harbor’ is perceived as a failure, therefore it IS a failure. Witness that the movie’s producer, Jerry Bruckheimer, took his next movie, (‘Black Hawk Down’) to Columbia so he “could get it positioned better”. In other words, to avoid the perceived taint of ‘Pearl’. So Columbia will reap in untold millions from the latest movie and Disney is left out. Is that fair? Is that right? No, it’s Hollywood.

Same thing with animation. The perception is that Disney’s “lost it” and that Dreamworks is hot. And we’ll see the practical result this summer. Disney wants to (according to rumor) move up the release date for ‘Lilo and Stitch’. They can’t get theaters because theaters are holding space for Dreamworks’ ‘Spirit’ which will be released Memorial Day weekend. Dreamworks is hot, they get the movie screens and the revenue. Disney is cold, they get shoved out of a very lucrative weekend.

None of this is a comment on the quality of the productions, it’s just the way the business works. Now that ABC is Number 4, no producer is going to be anxious to take their project there. Simple reason is that they’ll make a lot less money, subtle reason is that they don’t want to be on a “losing” network. And without big shows, how can the network improve its ratings? A vicious cycle that spirals ever downward.

The cycle is very difficult to get out of. My concern is that Disney is doing NOTHING to get out of it. The entire business is drifting without any idea about what it wants to accomplish and without any idea even about how to maintain it’s position. The result is that everything is drifting downwards in a cycle of budget cuts, disappointing results, leading to further budget cuts.

 

[raidermatt]

The cycle is very difficult to get out of.

I don't disagree with the cycle, but I do disagree that it is very difficult to change. I agree, Hollywood is not like the normal world in many respects. And one of those is that it is much more fickle than the most of the outside world.

True, there is a perception that Pearl Harbor was a failure in many ways, but anyone who follows the industry (including top talent, I'm sure) knows that it was only a failure compared to the high hopes pinned on it. $198 million plus huge overseas numbers and tremendous DVD sales will not be considered a failure by those who are in the know.

I agree, Blackhawk Down looks like it will be a successful film, though the box office is not always so easy to predict, even on the day of widespread release. But Sony also produced Ali, which has been a huge box office disappointment, struggling to even take in enough box office to meet its prodcution budget. Warner Bros' The Majestic has already been forgotten and might not even reach $30 million. These are common occurences and every studio has them. Top talent will also see the success Disney is having with The Princess Diaries and the Royal Tenenbaums. The only question is whether they will go to Disney with the "blockbusters", but that is more a factor of Disney's stated caution in this area.

As for Bruckheimer, I don't see how he could have taken Blackhawk to another studio as a result of Disney's #3 ranking this year, or even as a result of Pearl not taking in $300 million. Pearl only debuted 7 mos. before Blackhawk. I also understand Bruckheimer is at least considering doing Disney's Pirates movie, though admittedly that's just something I read and don't remember where.

As for TV, big talent does not always translate into success on the small screen, so ABC will still have plenty of hungry writers/producers to choose from, even if a few pass them over. The key is identifying the right ones, and making smart programming decisions. Easier said than done, but again, only time will tell if the management change will have any impact. (Dreamcatcher certainly sounds interesting...)

 

[TeenaS]

Hi - I'm new to this "News" forum. I have an MGM business question though and thought this might be the place to get the answer. The MGM that is up for sale - - does that just mean the studios, films, etc. or does it mean everything MGM (like the theme parks and casinos in Las Vegas, etc.)? If it also means the casinos, what do you think Disney would do with them if they go after MGM? I heard Disney doesn't have casinos on their cruise ships so it seems like Disney is not fond of being associated with gambling. I have a funny picture in my head of a casino in Vegas built on the lines of Cinderella's castle or maybe one that looks like Space Mountain.

 

[d-r]

TheDscoops' post made me think about the General Public. I am really not at all sure how much knowledge the "general public" has about these things, and what the reputation is.

For example, I, too, am really excited about Lilo and Stitch. Here is a link to a poll (unscientific, convenience sample, small n) where more people are excited about return to neverland - I wonder how many have heard of "Spirit?"

http://polls.yahoo.com/public/archives/28788827/p-mo-525?m=r

I think the "General Public" isn't that knowledgable about stuff like this. I bet that at least 20% of the people who saw Shrek think thought that it was a Disney movie (do a search on a peer to peer file sharer, and see the files listing Shrek as Disney; or do a search on E-bay for Shrek Disney), just like there are many people who think that Anastasia was Disney, Iron Giant was Disney, and even Buggs Bunny was Disney.

Here is an e-bay auction with two Disney videos, Shrek and Grinch:

http://cgi.ebay.com/aw-cgi/eBayISAPI.dll?ViewItem&item=1507118902

Here are some buttons from that Disney movie Shrek:

http://cgi.ebay.com/aw-cgi/eBayISAPI.dll?ViewItem&item=1506294553

And even a Shrek toy from Disney Pixar

http://cgi.ebay.com/aw-cgi/eBayISAPI.dll?ViewItem&item=1065612473

So, is this dragon from Shrek or is it mushu?

http://cgi.ebay.com/aw-cgi/eBayISAPI.dll?ViewItem&item=1695473452

A list of disney movies:

http://cgi.ebay.com/aw-cgi/eBayISAPI.dll?ViewItem&item=1068231011

There are several authentic Disney Buggs Bunny ties:

http://cgi.ebay.com/aw-cgi/eBayISAPI.dll?ViewItem&item=1696114469

A vhs copy of Disney's Anastasia

http://cgi.ebay.com/aw-cgi/eBayISAPI.dll?ViewItem&item=1505222204


Yahoo Auctions has a category for Disney animation, scroll trough it to see such titles as American Tail, Shrek, Batman and Superman, Chicken Run, Quest for Camelot, Babe and Barny-

http://list.auctions.shopping.yahoo.com/22094-category-leaf.html?

Here is a store selling "Disney's Shrek"

http://www.buyhere-online.com/kidsvids.htm

My point here is that I don't think a lot of people know what is Disney and what isn't.

I understand what AV is saying about Hollywood and the power of perception, but I think the perception of the General Public remains that any "kid's" thing is Disney. There are some people who use the word "Disney" just like "Fridgedare" or "Kleenex." I think that the Disney name implies quality and entertainment and family and kids to a lot of people.

DR

 

[Another Voice]

MGM Studios and MGM Hotels are really two different companies, but with the same individual controlling the majority of stock in each one. Only the movie company is up for sale, the casino group recently bought the Mirage group (The Mirage, MGM Grand, Treasure Island, and Bellagio are their biggest hotels) and now controls a massive chunk of Las Vegas.

MGM Studios is really nothing but a distribution company these days. It makes most of it’s money by financing new pictures and selling films from its library. It doesn’t have a studio lot (sold off years ago) or many tangible assets. Whoever ends up buying MGM is really only getting the film library, the rights to ‘James Bond’ and the lion logo.

Disney already has a presence in Las Vegas. There is a huge Disney Store in the Forum Shops at Caesars Palace and a just opened ESPN Zone at the New York Hotel as well (the hotel, oddly, is owned by MGM Mirage). During the “family destination” phase that Vegas went through, there were rumors about a DVC Resort “dude ranch” that was planned nearby.

There is nothing prohibiting Disney from getting into gambling (although they prefer to use the family-friendly term “gaming”). And there was a lengthy agreement about putting casinos on the ships – all the industry experts said the cruise ships would flop without it. Through a subsidiary, Disney already has a same “gaming for money” website in the Internet. And it seems like the only thing Disney builds these days are cheesy carnival games, so who’s to say what’s in the future.