Walt Disney Co, the world's second-largest media company, needs to make a big purchase to help compete with rivals such as AOL Time Warner Inc and Viacom Inc, analysts said.
Disney also may be a takeover target, some analysts and investors said, as the company's shares have fallen about 16 percent over the past two months and are trading near their 52-week low of US$26.
Following Monday's news that Comcast Corp has made an unsolicited US$54.8 billion bid for rival AT&T Corp's cable unit, Disney Chairman Michael Eisner may face added pressure to combine his company's entertainment content with a cable-TV or satellite-TV operator. A Comcast-AT&T deal might spur more cable consolidation, putting programmers such as Disney at a disadvantage in securing distribution for its cable networks such as ESPN.
"If this scenario plays out and causes a domino effect, then Disney will be left in a more vulnerable situation," said Lehman Brothers analyst Stuart Linde, who has a "buy" rating on Disney shares. "It makes it a more difficult and protracted negotiation situation for Disney" to get carriage on cable systems.
Disney "has good relations with both Comcast and AT&T," company spokeswoman Chris Castro said. She declined to comment further.
Disney shares fell US$0.02 on Monday to US$27.69 on the New York Stock Exchange. They've fallen 27 percent over the past year.
The decline reflects lower attendance at Disney's theme parks and sluggish advertising sales at the ABC television network. Both are expected to depress earnings for the fiscal third quarter ended June 30.
"Disney right now is operating on one cylinder," said Linde, who predicted that the company's shares will rise to US$34 within 12 months. Disney has traded below US$40 for most of the past five years.
In order to break out of this pattern and reach valuations more in line with competitors such as AOL Time Warner and Viacom, Disney needs to make a "strategic acquisition or partnership," Linde said.
Disney Chief Financial Officer Thomas Staggs said in May that the company is interested in buying media assets such as cable-television networks and radio and TV stations.
Others contended that Disney might be better off to selling itself, or merging with another company, particularly a large distributor, in order to get the jolt of growth it needs, Wit SoundView analyst Jordan Rohan said.
"Just like the entertainers these studios sometimes employ, companies need to reinvent themselves every so often," said Rohan, who has a "buy" on Disney shares. "If Disney buys something, it would be incremental [to growth] but not revolutionary. If Disney is bought by someone, it could be revolutionary." Disney shareholders would get "at least US$35 a share" in a takeover, said Rohan, who declined to comment on potential acquirers.
Some investors and analysts have speculated that a combination with Microsoft Corp, the world's largest software company, would make sense because it would allow each company to compete better with chief rival AOL Time Warner, the largest media and Internet company.
"Microsoft-Disney would be my dream scenario," said Jeff Pittsburgh, an analyst at Pittsburgh Research Inc who has a "hold" rating on Disney shares. "I think it would work. There would be a lot of synergy." Pittsburgh, who predicted that Disney shares may slip as low as US$23, noted that such a combination is "highly speculative." Rohan doesn't believe Microsoft Corp is a likely buyer.
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