Source: PaxForex Premium Analytics Portal, Fundamental Insight
In July, Disney CEO Bob Iger made headlines when he announced the company's intention to divest non-core assets, potentially including its linear TV businesses such as ABC, a major broadcasting network, along with various properties like local television affiliates, cable networks, and international networks. While ESPN remained excluded from the sale, Iger expressed openness to adding new minority partners to the sports media empire, of which Hearst owns a 20% stake.
Subsequently, reports have circulated regarding bids for ABC and related assets, with estimated valuations in the range of $10 billion, though updates have been scarce since September. However, Disney appears ready to embark on its first significant asset sale, as it appears close to finalizing a deal to sell a controlling stake in its Indian operations.
As per Bloomberg, Disney is in talks to sell a majority stake in its Indian operations to Reliance Industries, with the transaction valuing the entire business between $7 billion and $10 billion. Under the proposed agreement, Disney would still maintain a minority ownership stake in its Indian operations.
This development coincides with Disney's challenges in the Indian market, notably following the loss of streaming rights for the highly popular Indian Premier League cricket, resulting in a decline in Disney+ Hotstar subscribers. Additionally, Disney forfeited rights to HBO content to Reliance's JioCinema. Disney's substantial linear TV operation in India may also potentially be up for sale, reflecting Iger's earlier acknowledgment that the traditional linear TV business model was facing significant challenges.
Bob Iger, renowned for his dealmaking prowess with acquisitions like Pixar, Marvel, Star Wars, and Fox's entertainment assets, now recognizes the need for Disney to shed excess weight. With Disney's stock trading near nine-year lows, divesting assets and generating cash appears to be a strategic move to reinvigorate the company.
The potential sale of Disney's Indian operations would serve two vital purposes. First, it would raise substantial capital, which could be channeled into reducing debt, financing the upcoming dividend payments, or investing in growth prospects. This might include the development of a streaming service centered around its flagship ESPN station by 2025, or acquiring the remaining third of Hulu from Comcast.
Furthermore, selling the Indian assets would also send a signal to investors about the hidden value within the Fox assets, which have faced criticism for their acquisition cost. Disney's current nine-year low stock price reflects a decline in investor sentiment, attributed to losses in the streaming division, challenges in linear TV, and CEO changes.
Nonetheless, a single catalyst could reverse this trend, such as a significant asset sale or better-than-expected results in the upcoming fiscal fourth-quarter earnings report. Disney still boasts appealing assets, including its lucrative parks and experiences business and a vast library of intellectual property spanning from classic Disney content to Marvel and Star Wars.
Although recovery may require several quarters and reaching streaming profitability by year-end, Disney's improved financials or a substantial asset sale could provide the impetus investors are seeking, making it an opportune moment to consider investing in the entertainment company.
As long as the price is below 85.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 75.85
- Take Profit 1: 75.00
- Take Profit 2: 70.00
Alternative scenario:
If the 80.00 level is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 80.00
- Take Profit 1: 87.00
- Take Profit 2: 90.00
