Disney to Take Over Marvel in a $4 Billion Deal

Disney Buys Marvel

Walt Disney Co. President and CEO Robert Iger called “a great opportunity at the right time,” Disney is buying Marvel Entertainment Inc. in a $4 billion cash-and-stock deal.

The deal would plug a hole in the Disney line-up, rounding out the company’s stable of girl-focused characters: ”Hannah Montana,” ”High School Musical” and ”Wizards of Waverly Place.”

The acquisition comes as Disney, with its vast theme park operations and television advertising business, has been struggling because soft advertising sales at ABC and ESPN and drooping consumer spending at Disney World. Disney’s profit in the third quarter 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. Excluding that charge, Disney narrowly beat Wall Street’s expectations.

Under the terms of the deal, Marvel shareholders will receive $30 cash and 0.745 shares of Disney stock (NYSE: DIS) for every share of Marvel stock (NYSE: MVL) owned. That values each Marvel share at $50 based on Friday’s, August 28, closing stock price for Disney.

At closing, the amount of cash and stock might be adjusted such that the total value of the Disney stock issued is not less than 40 percent of the total merger consideration, based on its trading value at that time.

Both boards of directors have approved the deal, which is slated to close by the end of the year.

Shareholders at Marvel will need to approve the transaction.

On a conference call with investors, Disney said that the deal will be accretive to earnings in two years.

Disney also said that the deal will result in the issuing of 59 million new shares, but Disney would enter a buyback program to repurchase the same amount of shares during the next 12 months, as to not dilute stockholder value.

The deal gives Disney ownership of Marvel’s portfolio of more than 5,000 characters, which include such iconic characters such as Spider-Man, The Incredible Hulk, the Fantastic Four and the X-Men, many of which have been turned into successful movie franchises in recent years.

Current Marvel Licenses Still Upheld

Disney will continue to honor the distribution deals in place for Marvel films, such as Paramount Pictures’ deal for the “Iron Man” franchise, for the duration of the agreement.

“This transaction combines Marvel’s strong global brand and world-renowned library of characters including Iron Man, Spider-Man, X-Men, Captain America, Fantastic Four and Thor with Disney’s creative skills, unparalleled global portfolio of entertainment properties, and a business structure that maximizes the value of creative properties across multiple platforms and territories,” said Robert A. Iger, President and Chief Executive Officer of The Walt Disney Company. “Ike Perlmutter and his team have done an impressive job of nurturing these properties and have created significant value. We are pleased to bring this talent and these great assets to Disney.”

“We believe that adding Marvel to Disney’s unique portfolio of brands provides significant opportunities for long-term growth and value creation,” Iger said.

Ike Perlmutter to Make a Fortune in Disney Deal

Marvel Chief Executive Officer Ike Perlmutter will oversee the Marvel properties. Disney’s officers on the investor call reiterated that Disney is not looking to gut the company, or slap Disney’s name on Marvel’s products.

“The goal here is not to rebrand Marvel as Disney,” Iger said.

“Disney is the perfect home for Marvel’s fantastic library of characters given its proven ability to expand content creation and licensing businesses,” said Ike Perlmutter, Marvel’s Chief Executive Officer. “This is an unparalleled opportunity for Marvel to build upon its vibrant brand and character properties by accessing Disney’s tremendous global organization and infrastructure around the world.”

Marvel Entertainment began in 1939 as a comic book company called Timely Publications. It has since become one of the largest character-based franchises in the world, with a proprietary library of over 5,000 characters including The Incredible Hulk, Captain America, The Avengers and the X-Men.

Ronald O. Perelman acquired Marvel in 1989, but the company filed for bankruptcy protection seven years later, setting off a drawn-out takeover feud between him and a group of bondholders led by Carl C. Icahn. In the end, Mr. Perlmutter gained control of Marvel through his company, Toy Biz, and Mr. Perlmutter owns about 37 percent of Marvel’s stock, according to Marvel’s latest annual filing with regulators.

Marvel now has three main divisions: a licensing arm, which sells the right for other companies to use their proprietary characters in movies and promotions; a publishing arm, which makes the comics and books based on their characters; and a film production unit, which makes movies for some of their characters.

The film production unit is a relatively new venture for Marvel. The company originally licensed its characters to the big movie studios, but beginning in 2005, Marvel entered the movie-making business with the construction of a $525 million film facility.

Perlmutter will bring in a handsome payday from the deal. According to Marvel’s last DEF 14A statement with the U.S. Securities and Exchange Commission, which was filed March 24, Perlmutter is Marvel’s largest shareholder, controlling more than 29 million shares, or 37.21 percent of the company, through direct ownership, stock options and trusts.

Perlmutter’s stake will bring in about $881 million in cash after the close of the deal, as well as 21.878 million shares of Disney stock, which based on Friday’s closing price of $26.84, would be worth some $587.2 million.

Disney said the acquisition will hurt its earnings per share by a mid-single digit percentage in fiscal 2010. They expect the impact to be positive by the time 2012 rolls around, fueled in part, they said, by 59 million new shares and also by a number of new Marvel Comics-based movies: “Iron Man 2,” “Spider-Man 4,” “X-Men Origins: Magneto,” “X-Men Origins: Wolverine 2″, “Thor” and “The First Avenger: Captain America.”

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Ex law school student. I was kicked out for revealing I had a heart actually beating inside. I used to be in a modern dance company. I'm working on my 7 miracles to be proclaimed a saint by the pope. #1 is really hard, but once i get over that hump the other 6 will be a cinch.

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