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Disney's Big Character Test

NEW YORK ( TheStreet) -- Disney's (DIS - Get Report) box office success with summer blockbusters Brave and The Avengers -- along with the opening of its Cars Land theme park -- may prove that the company's future growth lies beyond Mickey Mouse and with M&A.

In a media industry filled with bad mergers, broken synergy promises and assets that perform better independently, the success of Disney's Marvel and Pixar acquisitions should give investors reason to believe that they have uncovered a rare winning conglomerate formula, just as the company's stock hovers near all-time highs hit earlier in June.
The Avengers, from Walt Disney Studios

Over the weekend, Brave posted an estimated $66.7 million in box office receipts, proving that Pixar's first original movie concept since its $7 billion 2006 acquisition by Disney wouldn't flop as an unlucky 13th animated film after 12 previous openings stretching back to Toy Story topped the box offices. The weekend result, which is Disney-Pixar's fifth best ever opening weekend, is the latest positive data point in a series of tests to chief executive Robert Iger's belief that the media giant can use M&A to realize outsized revenue opportunities and synergies.

Earlier this summer The Avengers had a record opening, taking $207 million in box office receipts and grossing nearly $600 million domestically to date, according to Box Office Mojo.

In June, Disney also opened the gates to Cars Land - a theme park reincarnation of Pixar's Cars movies -- to thousands of diehard fans who spent a night waiting to get a chance to see 'Radiator Springs' and 'Lightning McQueen' in person.

In CEO Iger's plan, Disney can use its creative minds, parks, retail platform and media networks to make more money from owning Marvel and Pixar than either business could independently. To that end, Disney will push expected synergies, highlighted by the $1.1 billion put into updating its Disney California Adventure Park with a Cars theme.

Nevertheless, investors should remain skeptical, given that media competitors have attempted the same strategy and failed miserably.

From 2000 to 2009, the largest media conglomerates wrote down $200 billion in assets as a result of a bad acquisitions and misguided 'strategic' investments, according to The Curse of the Mogul, a sweeping study on why an overstretch of C-Suite ambition has destroyed shareholder value throughout the industry.

But it's not just Disney's recent Pixar and Marvel success that may give credence to Iger's plan to grow the conglomerate as others like Time Warner (TWX - Get Report) and McGraw-Hill (MHP) shrink. Since acquiring Marvel in 2009 - a deal that was initially viewed skeptically -- Disney's shares have nearly doubled to $46.70.

In the last five years, the company's shares are up roughly 40% compared with a near 7% drop in the Dow Jones Industrial Average. Disney has also outperformed the broader market and peers like Time Warner, News Corp. (NWSA - Get Report) and Viacom (VIA) year-to-date and in the past 12 months.
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DIS $104.03 -1.19%
DISCA $28.15 -1.00%
NWSA $12.54 -1.00%
TWX $76.75 -0.21%
AAPL $95.03 -2.90%


Chart of I:DJI
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S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

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