Mouseketeer

For Disney's Iger, His Most Important Year Yet

Investors have learned not to bet against him, but now he needs to ensure that a massive deal for Fox assets will pay off.
Photographer: Kimberly White/Getty Images for Vanity Fair
WALT DISNEY CO/THE
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111.03 USD
TWENTY-FIRST CENTURY FOX-A
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37.31 USD

Bob Iger is making bigger waves in his final years running Walt Disney Co. than ever before -- and if you remember the circumstances surrounding his appointment as CEO more than 12 years ago, then you know that's saying something.

Iger's Busy Year

Source: Bloomberg

Two weeks before the curtain came down on 2017 -- a vexing year for companies that have traditionally dominated the production and distribution of media content -- Disney announced a colossal acquisition. It was the year's second-biggest transaction globally and the industry's largest since AT&T Inc.'s $109 billion bid for Time Warner Inc. in October 2016. 1 Disney offered to buy the majority of 21st Century Fox Inc. for some $66 billion, a deal in which the Murdoch media moguls, in return for Disney stock, will be handing Iger a greater swath of TV and film content to support the company's foray into online streaming.

It's the riskiest move Iger has made, but it's also a necessary one and shows the same prescience as his smaller purchases, not to mention a financial discipline that stands out in an age marked by frothy, debt-fueled deals.

The Last Jedi

For deals exceeding $20 billion in size last year, Disney stands out as the only acquirer to not rely on its balance sheet, while cheap borrowing rates became a crutch for others

Source: Bloomberg

Disney's shareholders and competitors had become accustomed to this rhythm of buying up film assets -- a la Marvel -- that present compounding returns by way of new theme park attractions and consumer products conceived from the endless stream of hit movies. While a salient strategy that's been both feared and admired by rivals, until now Iger's dealmaking had generally focused inward and did little to stir the industry beyond furthering Disney's lead in the box office. But this time it's put everyone -- programmers like CBS Corp. and Comcast Corp. and streaming giant Netflix Inc. -- on notice.

Scaling Up

Bob Iger has made a number of significant acquisitions and together they position Disney to be a major player in streaming, as it launches two new services and becomes Hulu's majority owner

Source: Bloomberg

Disney is the sturdiest and most prestigious of the traditional media giants, but it isn't exempt from their challenges. As Iger postpones retirement (again) and tries to preserve Disney's status as media vanguard, he's doing so against a backdrop of sweeping industry upheaval -- from the financially harrowing decline of cable-TV subscribers, to the spate of sexual harassment allegations that have rattled the news-and-entertainment guild, including accusations against Disney's own John Lasseter, the creative force behind Pixar who has since taken a leave of absence.    

Disney's stock is more expensive than all its peers -- the obvious exception being Netflix, which burned through about $2 billion of cash in the last 12 months to fund its burgeoning operations. But the quality and predictability of Disney's earnings are probably stronger than that of its other rivals. That the company could dilute its shares to make its biggest acquisition ever is a testament to investors' faith in Iger.

His succession continues to be a question mark, and I for one have questioned the wisdom of allowing a corporate entity to be -- or to be perceived as -- so reliant on one person. It's why Warren Buffett, 87, has been vocal that there is a plan for after he dies or retires, even if he continues to withhold the name of the person he's grooming to take over Berkshire Hathaway Inc. For Iger's part, he is 20 years Buffett's junior, and it's clear why shareholders are happy to see him stay on longer. (Iger's contract was recently extended through 2021, which also served to quash the speculation that he might launch a White House bid.)

When Michael Eisner picked Iger to be his successor, elevating him from company president, it initially drew criticism from Roy Disney, nephew of the late Walt Disney, and Stanley Gold, another former board member. Of course, Iger went on to mend relations with Roy Disney and others including Steve Jobs, who sold Pixar to the company the following year in what would be the first of three brilliant film deals from Iger. But in March 2005, before all of that, Gold made this caustic comment about Iger:

He is a modest man with a lot to be modest about. We certainly didn't get the best leader in the country.

Now, that is one statement that hasn't aged well. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. CVS Health Corp.'s $77 billion offer for Aetna Inc. was the largest deal of 2017. All figures include debt.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net

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