Pivotal's Wieser To Disney Shareholders: Let It Go

Walt Disney Co DIS is stuck in a catch-22 situation where the proposed acquisition of Twenty-First Century Fox Inc FOXA will reduce the value of Disney to shareholders, but failing to complete the transaction is a negative for the company, according to Pivotal Research Group. 

The Analyst

Pivotal Research Group's Brian Wieser downgraded Disney from Hold to Sell with an unchanged $93 price target.

The Thesis

Disney's stock appreciation over the past few weeks is "unwarranted" and implies it may have to pay a higher price to buy Fox's assets given the all-stock nature of the deal and a potential bidding war, Wieser said in the downgrade note.

The higher price tag on a potential deal would reduce the incremental value it should be able to generate from synergies associated with the purchase, the analyst said. But if Disney doesn't succeed in buying Fox's assets, it "would not get to realize any of the expected synergies," he said. 

While Disney is fine without Fox, investors "bought into the idea" that a greater direct-to-consumer focus that Fox would bring is a positive for the Mouse, Wieser said.

Investors would conclude that a failure by Disney to buy Fox's assets is a "subjectively negative" event, in Pivotal's view. 

Disney has few, if any, notable catalysts ahead that would justify the stock trading above Pivotal's $93 price target, so a downgrade is warranted, Wieser said.

Price Action

Disney shares were trading lower by 1.55 percent premarket Monday at $107.16. 

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