Disney Unlikely To Acquire Twitter Based On Past Deals

Shares of Walt Disney Co DIS slid 1.4 percent on September 26 on unconfirmed rumors of the company being set to place a bid for Twitter Inc TWTR. “[W]e find it hard to believe that, given terminal values in the $25 - 30B range, DIS will be able to make the deal work in a manner typical of ROICs achieved in past acquisitions,” Loop Capital’s David W. Miller said in a report.

Analyst Miller maintained a Buy rating on Disney, with a price target of $114. He commented that the company would likely not place a bid for Twitter [Rated: Hold] unless ROIC potential was at least in the low double-digit range.

Focus on ROIC

Disney is highly focused on ROIC when considering any deal, and mostly this needs to be “at or near the mid-teens to justify any bid,” Miller noted. With Disney’s cost of debt being in the 4.5 percent range and cost of equity near the 6.5 percent range, the company is unlikely to place a bid for Twitter unless there is potential for at least low double-digit ROICs.

The one thing that Disney may be interested in is the prospect of owning “the whole value chain behind the relatively new phenomenon of sports fans using two devices when viewing sports content, especially football.” However, the analyst commented, “Paying a premium above market for a business which has already seen a premium attached to it on acquisition rumors is not a game DIS management typically plays.”

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