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Disney's Dizzying Ascent

Sandy Brown

For all the knocks on supposedly slow-footed conglomerates, two big media companies have looked plenty nimble lately.

High-stakes acquisitions in new media have fueled 2006 rallies at Disney(DIS) and News Corp. (NWS).

Disney shares are up more than 15% and News Corp. is up more than 6% this year, despite dilutive acquisitions at both companies. Disney agreed in January to buy animation powerhouse Pixar (PIXR) for $7.4 billion, while News Corp. over the past year has grabbed Internet plays MySpace for $580 million and IGN Entertainment for $650 million.

Gains at Disney and News Corp. show that investors are willing to reward bold gambles in fast-growing businesses, regardless of concerns about size. The news could serve as a tonic to shareholders of laggard players like Time Warner (TWX), which recently fought off the breakup-minded hedge fund investor Carl Icahn. That is, assuming managers at those companies start making the right moves.

Disney CEO Bob Iger hasn't been shy about being early to the game where emerging technological trends are concerned. Witness the fact that he was the first to put his ABC network content on Apple (AAPL) iPods. Disney has also moved to unload some noncore businesses, as in its radio deal with Citadel Broadcasting (CDL).

"Disney stock certainly has strong momentum with continued ABC ratings strength, the prospect of a very strong opening from [Pixar film] Cars and continued very favorable reviews for Bob Iger's initial moves as CEO," says Jack Liebau, president of Disney shareholder Liebau Asset Management. Liebau also notes that Disney's theme-park business has been quite strong, particularly in Orlando, and that creative talent in the person of Pixar's John Lasseter should help.

Similarly, News Corp. Chairman Rupert Murdoch and COO Peter Chernin have been focused on grabbing a foothold in new media. Liebau says the MySpace acquisition is proving to be attractive, as the company is growing its subscriber base. He also notes Fox TV is performing well, along with Fox News. Liebau owns shares in News Corp. as well.

Meanwhile, the jury is still out on whether a high-profile split at Viacom(VIA) and CBS(CBS) will work. Shares in those companies are flat to down this year, in spite of a raft of high-profile moves by CBS chief Les Moonves in particular. Chairman Sumner Redstone was only the most vocal proponent of so-called media disassembly last spring, when he unveiled the plan to cleave the two longtime stablemates.

Still, not all is lost for disassembly boosters out there. Liberty Media(L), for example, has created tracking stocks drawn along interactive and capital investment lines in the hope that by breaking out the different parts of the company they will get more appropriate valuations.

The knock on Liberty historically is that it has been too complicated for analysts and investors, says Liebau, who owns the stock. Tracking stocks are a way to "narrow the gap between what [Liberty] is worth and what it's trading at," Liebau says. "The transaction is worth it to me."

Liberty is expected to launch the tracking stocks in May.