Disney's TV Demise Could Be The Perfect Time For A $70 Billion Netflix Acquisition

While mentioning that there were no indications from the companies of a possible deal between Walt Disney Co DIS and Netflix, Inc. NFLX, Bernstein’s Todd Juenger commented in a report that such a deal would be “a huge, dilutive, transformational event.”

TV Demise May Be Inevitable

The more Disney succeeded in accelerating the success of Netflix, the faster would be the demise of the former’s core TV network businesses, Juenger pointed out. He added, however, that the demise of Disney’s core TV network businesses may “happen anyway,” and that it may be better for the company to “own the winning solution.”

Buying Makes More Sense Than Building

Disney may need to pay as high as ~$70 billion to acquire Netflix. Although this price is substantially higher than what Disney would need to build from scratch, opting for the latter would take a long time, during which the expense would “flow through the P&L,” while Disney would still have to compete with Netflix, Juenger explained.

“The estimated -31% dilution. But we don't care so much about the dilution, never do. To us what matters is whether the thing you bought is worth, to your shareholders, more or less than what you paid, and how does that compare to the NPV of the next best alternative,” the analyst wrote.

Juenger has a Market-Perform rating and a price target of $102 on Disney.

Netflix was a Wall Street darling in 2015, climbing more than 140 percent. However, its run slowed in 2016 at one point trading in the red year-to-date before spiking higher in late October.