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Financial Expert: Disney/ EA Merger is a Bad Idea

| 12 Nov 2008 12:00
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One business blogger is disputing claims that a Disney/Electronic Arts merger would be profitable and sensible for both companies.

Proposed by the Wall Street Journal a couple weeks ago, the idea of Disney acquiring Electronic Arts to expand its entertainment empire while EA's stock was undervalued seems to miss the problems associated with such a sizable acquisition, says Steven Mallas, a financial blogger for BloggingStocks.

"Honestly, that would be one of the worst things that [Disney] CEO Bob Iger could do," complained Mallas. "Yep, strange days beget strange things, and the notion that the Mouse should invest in EA is perhaps one of the stranger beasts to walk Wall Street."

Mallas agrees that EA's stock may be cheap at $7.53 billion, that doesn't change the lack of relevant business reasons for the deal, ranging from an inability to integrate to broad, multi-faceted companies and the abandonment of Disney's current gaming efforts.

"I shudder to think about how Iger would possibly integrate the publisher into his conglomerate," explained Mallas. "Disney already has made significant investments in the videogame industry, and many of the games that the company releases are based on intellectual properties that have already been incubated in other parts of the business. Imagine if Disney had to deal with a larger, more complex pipeline, one that would obviously contain a lot of properties that could not be used in, say, the theme parks or by the movie studio. Personally, I think it would be a distraction to Disney."

Mallas suggested gaming should primarily be used for further branding of existing Disney franchises, if interactive entertainment is to even remain a part of the Disney portfolio. He said, "I've been wondering lately if Disney maybe should slow down its videogaming ambitions. I like the long-term thesis of gaming, but I think other areas of the Disney empire might make better use of some of the capital going to this area."

Such a stock decision is supposed to profit the shareholders. Ultimately, the relatively steady Disney stock wouldn't benefit from a major combination with a new business.

He concluded, "Disney is, by many accounts, a decent value. Problem is, it's been a decent value for a long time. The stock just hasn't gone anywhere for what seems like an eon. And I'm supposed to believe that a down-on-its-luck EA is my ticket to equity riches? Again, I don't think this will ever, ever happen, but I just have to say that it makes me scared simply thinking about it."

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