Wall Street (and journalists) love the idea of a dazzling megadeal, and its latest iteration, which considers the long-rumored possibility of a tie-up between Apple (AAPL) and Disney (DIS) , seems almost irresistible.
It's not hard to think of reasons why an Apple-Disney deal would make sense, but as several analysts have pointed out, there would be a lot of complicated moving parts involved in making it happen. RBC Capital Markets analyst Amit Daryanani, who explored the possibility in a note to clients on Thursday, doesn't seem very convinced, assigning a very small likelihood of a deal actually getting done (in his words, the possibility is merely "greater than zero %"). Still, Daryanani said Apple could be willing to pay more than $200 billion for Disney, whose current market cap is about $180 billion, and argues that investors are warming up to the idea.
(TheStreet's Jim Cramer discussed the enormous appeal of thinking and writing about an Apple/Disney mega-deal in a column for Real Money on Thursday).
"Our conversations suggest that investors are giving such a transaction far more consideration than they were three or six months ago," Daryanani wrote. "Tax legislation would likely move expectations higher and could be a material trading event for the stocks."
Apple, whose current market cap is almost $745 billion, stands to be a big winner if President Donald Trump follows through on his plans for a tax holiday, which could result in the tech giant bringing more than $200 billion in offshore cash back to the U.S. Several analysts have said that Apple could use the repatriated money to buy back shares and increase its dividend payout. But another, certainly more eye-catching, option would be for Apple to pursue some sort of M&A.
CEO Tim Cook has signaled previously that the company is open to the idea of M&A and is thinking about ways it could "play" in the original content business.
"There's not a size that we would not do, based on just the size of it. It's more the strategic value of it," Cook said on the company's first-quarter earnings call. "...We're learning a lot about the original content business, and thinking about ways that we could play in that."
Apple's interest in M&A and original content has caused many analysts to speculate what a combined Apple and Disney could look like. According to Daryanani, the combined company would have a market cap approaching $920 billion, putting it that much closer to beating Amazon (AMZN) and Alphabet (GOOGL) in the race to be the first company to reach a $1 trillion valuation. And it would create a megalith of a technology and media company with more than 300,000 employees.
"The question becomes does Apple have the capacity to manage both companies?" said Nelson Wu, managing director at investment advisory firm Open Square Capital. "I think some Apple executives could cross over and be able to manage some of Disney's production capabilities like television and other media."
Apple already has some consumer brand-focused executives on its payroll, such as senior vice president of retail Angela Ahrendts who is a former CEO of Burberry (BURBY) , that would mesh well with Disney, Wu noted. Moreover, Disney CEO Bob Iger has also been a member of Apple's board of directors for six years, meaning that the companies "know each other really well," said Francis McInerney, managing director of consulting firm North River Ventures.
Loup Ventures analyst Gene Munster said a $200 billion deal would be out of character for Apple, however.
"[There's a] 0% chance Apple buys Disney," Munster explained. "The reason is Apple buys smaller companies and builds them into bigger things."
Apple's largest acquisition to date has been its $2.2 billion acquisition of high-end headphone maker Beats Inc in 2014. Besides that, other notable deals include its purchase of chipmaker P.A. Semi for $278 million in 2008 and fingerprint sensor technology producer AuthenTec for $356 million, Munster noted.
Even if Apple doesn't attempt to purchase Disney, Munster believes the tech giant will increase its investment in content somehow over the next five years.
That said, Apple's interest in content is the backbone for why a Disney deal would make sense, Wu noted. Apple has gradually signaled that it wants to rely less on the iPhone as its core revenue source. Currently, the iPhone generates about 60% of Apple's revenue, Wu said.
"They have to release an entirely new iteration each year and if [profits] don't collapse on one iteration, probably about half could dissolve if it doesn't go over well," Wu noted. "If they're able to do this deal...it insulates them from the tech market. It frees them up to focus more on content distribution."
A Disney deal would allow Apple to "instantly leapfrog" Netflix (NFLX) , Amazon and Google's YouTube in terms of original content, Daryanani said, which is an attractive proposition given Apple's prior failed attempts to enter the streaming content market.
"Should Apple decide that content creation and ownership is in fact strategic, then Disney could be a one-stop shop for leadership-level content capability given the strength of Disney's intellectual property," Daryanani explained. "And of course, given Apple's cash, it's one of the few companies that could actually contemplate acquiring Disney."