Disney: worth more in pieces?
1st of 66fastest to finish · 100% accuracy
AmplifyME's 24-hour M&A challenge. The brief was a full valuation of Disney, a test of whether a three-way break-up unlocks value, and a look at buying Electronic Arts. The question underneath it all: is Disney worth more as three businesses than as one, and if the market is discounting it, is buying EA a better use of its shares?
- The discount is real, but fragile.
Weighting the DCF and both trading multiples equally puts fair value 20% above the share price. But using peer medians instead of a mean dragged up by Netflix, both multiples legs fall to $77 and $89. The DCF upside also needs beta to stay at 0.45, when it only breaks even at 0.92.
- The break-up case was comparing unlike numbers.
The segment DCFs add up to $144.47 a share, which looks better than the $132.98 standalone. But that's an enterprise value, and the standalone figure is equity. Take off $19.84 of net debt per share and the parts are worth $124.63, so splitting up destroys $8.35 a share. It's the same check I learned at Balfour Beatty: know what a number measures before you compare it.
- EA doesn't pay for itself.
At a 30% premium Disney would be paying 73.6× EA's earnings with shares valued at 14.1×. The modelled $500m of synergies is worth about $5.3bn, a third of the $15.1bn premium. Justifying the price would take $1.43bn a year, nearly three times the modelled figure. The debt side is fine (leverage goes from 1.90× to 2.35× against a 3.0× covenant). The problem is the price.
The case materials belong to AmplifyME, so the deck isn't posted here. The figures above come from my own model.