Pachter: "Low Probablity" of Disney/EA Deal

| 15 Dec 2008 09:33

Videogame security analyst Michael Pachter is doubting the likelihood of a Disney acquisition of Electronic Arts, a deal he says has a "low probability" of happening.

As bloggers continue to debate the likelihood that entertainment conglomerate Disney will purchase the financially battered Electronic Arts, famed industry analyst Michael Pachter of Wedbush Morgan Securities doesn't believe EA shareholders will see such a deal.

In order to weather the rough worldwide economy, Disney is likely to defend its current amusement park, film and media markets. "Although it makes sense, Disney has to deal with the potential for sharply reduced cash flow if its theme park traffic drops," commented Pachter. "They will most likely conserve cash, and I don't see them making acquisitions while they have other issues to deal with."

Pachter agrees with the "convergence" theory purported by the merger's supporters; the two combined companies would cross-market their gaming and entertainment brands to maximize exposure, especially for Disney's strong cultural presence. He explained, "They want video game development capability to exploit owned IP like Hannah Montana, High School Musical, Narnia, etc. They could get a strategic fit from EA sports and ESPN."

Despite the strategic arguments, a large acquisition is unlikely for financial reasons. "Even at these low prices, EA isn't 'cheap' (around $4 billion), while THQ would cost 1/10 as much," noted Pachter. "Disney also has to question why EA is such a mess. It makes an acquisition more risky."

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