I bit. I took the bait. I talked about it. And I feel tawdry and a bit foolish, but I went there.
I am talking about the twin RBC Capital Markets pieces today about Apple (AAPL) potentially buying Disney (DIS) .
Yep, today two gigantic compendiums came out titled "Could Apple Look at Dis? Cash of the Titans" and "Is Disney a Target of Apple? Cash of the Titans."
The hook was right there and I swallowed it in the Disney version: "Our view: Recently investors have increased their expectations that Apple could seriously consider acquiring Disney. As this creeps into the Disney narrative, it offers downside support and supports further momentum. We like Disney on the fundamentals, but a mega-cap M&A narrative is additive to the rerating story."
So who put this narrative out? The Disney and Apple analysts at RBC. And how did it seep into the conversation? Because we bit; we talked about it on air.
Why am I so dismissive? Because while the combination is rational -- more on that in a moment -- the Disney analyst who is promoting the narrative calls the option "greater than zero %."
Can we say low bar?
The Disney analyst thinks Apple can get the company for a 40% premium. The Apple analyst says it would dramatically boost my beloved service stream revenue, taking it up to 29% of the earnings.
The Disney analyst points out that it would create a "$1 trillion company with almost limitless opportunities in content and technology" and that it would be accretive given Apple's large cash balances if we get repatriation and given that Disney has such low debt. It's a "whole new world," the Disney analyst says, and it would be "hakuna matata" given the studio firing on all cylinders and the incremental margins of the theme parks.
Here's the issue, though: Like Aladdin, like Lion King, this is fiction. Apple hasn't done any big deals like this, although it did say it is open to them.
Therein lies the problem. It can't be refuted. Neither Apple nor Disney is going to comment on this combination. It is thoughtfully reasoned, however, with lots of talk of game-changers: diversification from hardware, an adoption of better technology at the theme parks with "unprecedented scale" that would produce "a leader in content creation and distribution that could top Netflix, Google and Amazon." The fact is, if you buy Disney's stock on this, I would tell you that you might as well believe in Mickey and Donald and Han Solo and Captain Marvel and anybody else in the stable.
But I can't come out and say it is not true. What happens if it does occur? What happens if the 1% transpires?
And that's where I feel trapped. You can't not talk about it. The story is sexy and exciting and would make all kinds of sense.
So do so many other combinations, though. Shouldn't Kraft-Heinz (KHC) buy Unilever (UL) ? But Unilever isn't for sale. Shouldn't T-Mobile (TMUS) and Sprint (S) merge? Yes, but it probably wouldn't pass antitrust muster. Wouldn't it be fabulous if Facebook (FB) and Snap (SNAP) merged? They'd own the social media space. If Wells Fargo (WFC) and Goldman Sachs (GS) merged, it would be ideal. And so on and so on. (Apple, Facebook and Wells Fargo are part of TheStreet's Action Alerts PLUS portfolio.)
Yes, dream away on this merger. But remember, there are these two people, Disney CEO Bob Iger and Apple CEO Tim Cook, who, yes, know each other -- Iger's on the board of Apple, another unassailable fact --and they just might not want to do the deal.
Also remember, though, the only thing that's really accomplished here? Shorts will be afraid to go against Disney's stock. It really does put a bid underneath simply because it was too juicy not to talk about. Not only did I take the RBC bait. We all did -- hook, line and sinker.
