Disney Wants to Buy Twitter, but Why?
Disney Wants to Buy Twitter, but Why?

The Walt Disney Co. (DIS:NYSE) joined a number of other companies who want to acquire Twitter. Disney hired investment bankers to evaluate a potential acquisition of the social network, according to a Bloomberg report on Sept 26.

The news came after recent rumors that Salesforce.com, Microsoft, and Google were among potential suitors for Twitter Inc. (TWTR:NYSE). Shares of the social media company soared more than 25 percent, adding $3.6 billion in market value since the rumors started on Sept. 23.

According to media reports, Twitter is working with the investment bank Goldman Sachs to organize a competitive bidding process.

Does It Make Sense for Disney?

Disney’s announcement comes as a surprise, said Tim Nollen, a senior media analyst at Macquarie Bank.

“It seems like a major step in a different direction for Disney. It is surprising to me partly because they have already bought BAMTech, which is an online video streaming service. I can piece together the strategic logic but it is still a very big move,” he said.

Disney owns ABC and ESPN and its core business is content production.

“There are questions around the distribution of that content on pay TV. … Disney clearly feels an urge to get into distribution but they don’t have much experience with it,” Nollen said.

“This is why they bought BAMTech last month, which has the capability to deliver their content direct to consumers. Twitter will accelerate that. It will offer audience and a potential new advertising platform to Disney.”

Disney has roughly $5 billion in cash on its balance sheet, according to the latest quarterly filing. But the company would have to raise debt or issue equity to finance the acquisition of Twitter, which has a $16.7 billion market valuation.

(Yahoo finance)
Twitter’s share price performance since its IPO in Nov. 2013. (Yahoo finance)

“Clearly it will be a very big acquisition for Disney, they either have to absorb more debt or issue shares, which could be dilutive,” Nollen said.

If the deal goes through, this will be one of Disney’s largest acquisitions.

“In our view, it is not inconceivable that a media company, especially one exposed to sports like Disney, is interested in a deal given that Twitter is essentially a broadcast platform. Twitter activity around sports tends to be disproportionate to the volume of sports on TV,” Kannan Venkateshwar, senior media analyst at Barclays Capital stated in a report.

“Sports events make up on average 1.4 percent of programming on TV and account for almost half of all Twitter TV conversations,” the report stated.

Twitter’s co-founder and CEO, Jack Dorsey has been a board member of Disney since 2013. And Dorsey sees Walt Disney’s CEO Bob Iger as a mentor.

Attractive Target

The 10-year-old messaging platform Twitter lags far behind rival Facebook in key metrics such as user growth. In July, Twitter announced it reached 313 million monthly active users. In comparison, Facebook has 1.7 billion users.

However, Twitter’s service is used by many high-profile figures including politicians. It appeals to a more professional audience, whereas Facebook’s audience is more widespread.

Despite being a niche platform, Twitter has many problems, including ad revenues, user growth, and low user engagement. The company lost more than 50 percent of value since its initial public offering in Dec. 2013. Now it’s a cheap acquisition target.

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