Trading Nation

Investors aren’t putting much stock in the Apple/Disney takeout talk

Key Points
  • RBC research analyst Amit Daryanani thinks there's a chance Apple will acquire Disney.
  • There probably isn't.
  • People like the stocks anyway.
Trading Nation: Apple to buy Disney?

RBC research analyst Amit Daryanani says there's an off chance that Apple could acquire Disney, but some investment professionals think it's an exceptionally off chance indeed.

While admitting that the odds of such a tie-up "are low," Daryanani wrote in a Thursday note that "We see a confluence of events that make an acquisition of DIS [by Apple] a 'greater than 0%' probability event."

"AAPL's focus on services and its inability (so far) to replicate its music/iTunes strategy into content/media make acquiring DIS logical in our view," the analyst explained, adding: "This is particularly true if AAPL can access $200B+ in offshore cash via repatriation holiday."

But even if there is a case to be made for such a deal, many heavily discount the chance of it happening.

"One large company buying another large company really just isn't good business sense," Erin Gibbs, equity chief investment officer at S&P Global, said Thursday on CNBC's "Power Lunch."

"Being categorized as a media entertainment company could possibly increase Apple's multiple," Gibbs acknowledged in an email to CNBC, "but most of the criticism of Apple revolves around its slowing growth, and Disney is growing at a slower place. One would more likely expect an acquisition to increase the growth rate rather than lower it."

On top of that, Disney makes a great deal of its money from theme parks, and technology products drive Apple, so "the two companies have very little overlap when it comes to the main revenue sources."

"I do see some merit in it, but it is an off-the-wall proposal," Mark Tepper of Strategic Wealth Partners said Thursday on "Power Lunch."

After all, Apple's biggest-ever acquisition was that of Beats Music and Beats Electronics for $3 billion. Daryanani's assumption is that Apple would pay a healthy premium and acquire Disney for $237 billion. To be sure, this could be doable given the massive amount of cash on Apple's balance sheet. But whether Apple would see fit to take such an outsized risk is another question.

Bob Iger, chief executive officer of The Walt Disney Company, walks with Tim Cook, chief executive officer of Apple.
Drew Angerer/Getty Images

And it's not clear that investors would see much merit in such a tie-up. The recent trend has been for companies to spin off separate businesses, rather than to combine into massive conglomerates. The fact that Apple and Disney are two separate stocks allows investors to select which one they'd rather own.

Currently, Tepper is a fan of Disney, saying that its "strong slate" of upcoming films and the robust performance of its theme parks are bullish catalysts.

Gibbs, meanwhile, likes both stocks.

And Daryanani, for his part, ranks Apple "outperform" and maintains his $155 price target on the $141 stock, with "iPhone 8 cycle tailwinds" serving as the primary bullish catalyst.

Disney shares hit a sixteen-month high on Thursday, but that doesn't mean investors are taking the buyout talk too seriously. The stock closed just slightly up on the day, at $113.20.

Meanwhile, those shares would be valued at about $157 on a takeout, according to the analyst.