CFO Says Disney Has No M&A Plans, Pokes Rivals For Splitting Assets — “What You Do When You Don’t Have A Great Business”
Disney chief financial officer Hugh Johnson said the company will be sitting out this round of industry M&A. On a conference call with analysts and an interview with CNBC Thursday morning, the executive said CEO Bob Iger spent decades building up the business, which is set with what it has.
“Bob and the team really built the IP portfolio that we have over the last decade – whether it was the Fox acquisition or Lucas or Pixar — so we actually feel like we have a great portfolio and we don’t need to do anything. From that perspective, we’ll let this play out,” he said on a call after after Disney’s quarterly earnings. “In terms of other competitors, we’ll see how the various moves play out, but we like the hand we have now so I wouldn’t expect us to participate in making any significant moves.”
Asked during a CBNC interview earlier about industry M&A including a pursuit of Warner Bros. Discovery, led by Paramount, he’d said, in a similar vein, “What they’re talking about doing, it’s really what we did 10 years ago, whether it was the Fox deal or the Pixar deal or the Lucasfilm deal. Bringing more in house is something that we did a good long time ago. As a result of that, we don’t really need to participate in these things.”
With linear television continuing to decline. WBD — along with putting itself up for sale –is also planning a split of its linear television business from studios and streaming. Comcast is preparing to formally spin off its cable networks in a transaction expected early next year. Johnston told CNBC that Disney is going the other direction and that he thinks his company’s “integrated ecosystem works really, really well.”
“This whole idea of splitting up assets and all that, that’s what you do when you don’t have a great business.”
Iger in the past has mulled selling ABC and Disney’s cable networks. He said on a call early this year that, “We actually are at a point where the linear networks at our company are not a burden at all. They’re actually an asset … We are programming them, and we are funding them at levels that actually give us the ability to enhance our overall television business that obviously includes and leans into streaming, which, let’s face it, is really the future of the television business.” He didn’t rule out selling some of the company’s smaller networks.
Paramount’s owner David Ellison has offered to buy all of WBD. Amazon MGM and Netflix are exploring bids for Warner’s studio and streaming business Asked whether he believes any specific combination would be good or bad for competition, he said, “It depends on who the competitor is. It’s going to depend on what the circumstances of the deal are so. In general, look, I’m generally in favor of the market deciding things. That said, we’ll see what the specific situation is, and then I’ll answer at that point.”
Investors were underwhelmed by the fiscal fourth quarter numbers, which missed revenue forecasts and have knocked Disney shares down 7% in early trading. The market is shrugging off news of a 50% dividend hike and of a share buyback program doubled to $7 billion.
Johnston told CNBC the moves are significant. “When you commit through a dividend, that’s a commitment forever. It’s awfully hard to cut the dividend unless some dramatic crisis happens and we wanted to send a signal [that] our cash flow is strong, and it’s going to be strong for a sustained period of time. Same thing with share repurchases … That’s a signal that says that we expect cash flow not to be strong just for this year, but for a number of years going forward.”
He thinks the stock is underpriced. “I really do. I believe investors are going to build conviction over time, and we actually see some investors doing that right now. But I think we need to continue to prove the case that as we go through this transition, we are going to emerge one of the winners. In fact, we’re already one of the winners.”
