Disney to Pay $4 Billion for Comic Giant Marvel

Disney to Pay $4 Billion for Comic Giant Marvel
By BROOKS BARNES and MICHAEL CIEPLY
Copyright by The New York Times
Published: August 31, 2009
http://www.nytimes.com/2009/09/01/business/media/01disney.html?_r=1&ref=global-home


LOS ANGELES — In a deal that redraws Hollywood’s architecture, the Walt Disney Company said Monday that it would acquire Spider-Man and his Marvel Entertainment cohorts for $4 billion.

Marvel has aggressively exploited its most popular characters through motion pictures, video games and consumer products. But Disney sees an opportunity to plug Marvel into its vaunted marketing and distribution system.

Almost immediately, for instance, Marvel characters will pop up at Disney’s theme parks in Paris, Hong Kong and Orlando, Fla. Disney’s cable television channels will showcase Marvel, while consumer products could mark an enormous area of growth, particularly overseas where the comics company has struggled to make inroads.

“Marvel’s brand and its treasure trove of content will now benefit from our extraordinary reach,” Robert A. Iger, Disney’s chief executive, said in an interview. “We paid a price that reflects the value they’ve created and the value we can create as one company. It’s a full price, but a fair price.”

The surprise acquisition points to the film industry’s biggest issue at the moment: access to capital. Those who have it are finding opportunity; those who do not may be left behind.

Marvel had tried to finance its films with the help of a $525 million in slate financing, but found it impossible on “Iron Man” and “Hulk” to meet a condition that required it to raise a third of its cash by selling overseas distribution rights. To get around the requirement, Marvel in May told investors that it would self-finance a third of each film — something that would be much easier with Disney’s muscle behind it.

The deal instantly makes Disney a partner with Paramount Pictures, Sony Pictures Entertainment and 20th Century Fox, all of which have long-term deals to make or distribute movies based on Marvel characters. Coming are new entries in Sony’s “Spider-Man” franchise and Fox’s “X-Men” series.

Over the long haul, Paramount has the most to lose, as Disney works Marvel into its system. Only last September, Paramount, a unit of Viacom, announced an agreement to distribute five Marvel films, including two “Iron Man” sequels, over several years.

Disney said it would honor Marvel’s studio contracts, but the goal is clearly to bring “Iron Man” and others in-house over time.

“We believe Viacom is unlikely to retain distribution rights to Marvel films after the agreement,” Michael C. Morris, a UBS analyst, wrote in a research note.

A Paramount’s spokeswoman had no immediate comment, other than to point toward Mr. Iger’s assurances that he would honor its terms. A spokesman for Fox did not immediately respond to a query. A Sony spokesman said, “Our deal is not affected.”

Marvel’s traditionally strong contractual position on its various projects will probably give Disney considerable ability to affect progress on and timing of various films, creating a potential headaches for studios for years to come; rivals will be trying to build schedules around movies on which Disney now has input.

As Disney’s own live-action film schedule becomes more robust, the studio may find its new partnerships and agendas bumping into each other. Only last month, Disney’s new partners from DreamWorks found themselves assuring the company that plans to develop a film based on Michael Crichton’s novel “Pirate Latitudes” would steer clear of any conflict with Disney’s plans for a fourth “Pirates of the Caribbean” movie.

Marvel’s intellectual property tends to be more popular with boys — an area where Disney could use help. While the likes of “Hannah Montana” and the blockbuster Princesses merchandising line have solidified Disney’s hold on little girls, franchises for boys have been harder to come by.

Disney XD, a new cable channel aimed at boys, already licenses 20 hours of programming a week from Marvel. As Disney seeks to expand that channel, particularly overseas, Marvel will play an even greater role.

The acquisition, which has been approved by the boards of both companies but still must be approved by Marvel shareholders, got mixed marks on Wall Street. While most analysts applauded the move as bold and strategically sound, some analysts questioned the price as too steep. Disney shares fell 3 percent in afternoon trading. Marvel shares were up 25 percent.

One question is whether Marvel’s lesser-known characters can be developed into blockbusters — a la Iron Man — and how much movie muscle the library’s most valuable assets — like Spider-Man and the X-Men — have left. The declining DVD market is also a concern.

“They are not immune from the changes that we’re seeing,” said Mr. Iger, referring to the DVD market specifically. “But they have established a footing that we think is more solid than what you typically see in the non-branded non-character driven movie.”

Mr. Iger dismissed worries about the value of Marvel’s lesser-known characters, pointing to Iron Man as an example of the opportunity.

Marvel’s development slate is relatively thin: The company works on only five or six scripts at once, compared to the dozens under way at major studios, though virtually all are expected to become finished films. Permanent staff at the Marvels Studios film unit is only about 25.

Yet the company made an enormous impression by racking up an almost unbroken series of hits after having risen from bankruptcy in 1998. The company’s major break came when it decided three years ago to make its own films rather than relying on studio partners, and struck gold with “Iron Man,” which took in about $585 million at the worldwide box office.

Marvel’s vice chairman, Peter Cuneo, in May called its comic book publishing business “the most profitable print publishing business in the world,” at an investor meeting. He said the net profit margin on that business is 40 percent or more.

The deal started to come together in June when Mr. Iger reached out to Ike Perlmutter, Marvel’s chief executive. The two men had a cordial meeting in Mr. Perlmutter’s New York office. Talks heated up in the last two weeks, with Disney agreeing to one of Marvel’s top demands: that stock be part of the deal.

“We were willing to issue these shares since it was an important component in consummating the deal,” said Thomas O. Staggs, Disney’s chief financial officer, on a conference call with investors.

Under the terms of the deal, Marvel shareholders will receive a $30 a share in cash plus about 0.745 Disney shares for each Marvel share they own. The deal is valued at $50 a share, a 29 percent premium on Marvel stock.

Mr. Staggs said he expected the deal to close by the end of the year, adding that the acquisition should start having a positive impact on Disney earnings in 2012. There are no immediate plans to move Marvel from its Manhattan Beach, Calif., headquarters.

“This deal is not principally driven by cost saving or redundancies,” Mr. Staggs said. “What really drives this is the opportunity for synergies over time.”

Mr. Perlmutter said in a statement: “Disney is the perfect home for Marvel’s fantastic library of characters given its proven ability to expand content creation and licensing businesses.” Mr. Perlmutter will oversee the Marvel properties, and will work directly with Disney’s global lines of business to build and further integrate Marvel’s properties.

The acquisition comes as Disney, with its vast theme park operations and television advertising business, has been struggling because of a lack of hit DVDs, soft advertising sales at ABC and drooping consumer spending at theme parks. Disney’s profit in the third quarter, which ended June 27, dropped 26 percent.

Over all, Disney’s net income fell to $954 million, or 51 cents a share, from $1.28 billion, or 66 cents a share, in the year-ago period. Revenue fell 7 percent, to $8.6 billion. Earnings per share for the current quarter included a one-cent restructuring charge related to an accounting gain.