After Marvel and Pixar, is Disney (NYSE:DIS) looking at another big acquisition? A Citigroup (NYSE:C) analyst suggests so and states that Scripps Network Interactive might be a potential target for the media giant.  Some of the facts suggest it might be a good idea even though the motive may not be congruent with the motives for the acquisitions it made in the past.
Disney is heavily dependent on ESPN which contributes close to 45% to its value, as per our estimates. This is primarily due to high penetration among U.S. pay-TV households and a very high fee per subscriber, which is ranging over $5 per subscriber per month in 2012. ESPN is a sports focused channels while Scripps owns several lifestyle focused channels such as HGTV, Food Network, Cooking Channel, Travel Channel, etc. Therefore Scripps appeals to a different demographic, offering a potential to diversify for Disney. Although Disney does not have any imminent threat to its leadership in sports programming, other sports networks are increasing their efforts. Comcast (NASDAQ:CMCSA) NBC’s Olympics broadcast after a handsome bid is one such example.
However, the flip side is that Disney’s intent behind acquiring Scripps (if at all) may be quite different compared to that of its previous acquisitions such as Pixar and Marvel, which were intended to strengthen Disney’s presence in genres such as animation and superhero movies.
Pixar helped Disney reach new heights in animation while Marvel helped its superhero movie roster improve by orders of magnitude. Some of the early superhero movies from Disney include The Rocketeer, Sky High and Underdog. These acquisitions were about enriching Disney’s roster of marketable and famous characters. On the other hand, Scripps would be more about developing additional reach in a different demographic.
Will Disney adopt this diversification approach instead of bolstering its key strengths?
Our current price estimate for Disney stands at $51.50, implying a premium of less than 5% to the market price.Notes: