X An Apple (AAPL) acquisition of Walt Disney (DIS) would meld two strong brands and would be aided by tax proposals from the Trump administration that would make it easier for U.S. companies to repatriate overseas cash, RBC Capital said in a report issued Friday.
"We like Disney on its fundamentals, but a mega-cap M&A narrative is additive to the rerating story," said Steven Cahall, a RBC Capital analyst in a report. "An Apple-Disney combo would create a $1 trillion company with almost limitless opportunities in content and technology."
"Content is a major focus for Apple, target size is not an issue, and Disney offers an avenue to diversify away from hardware without diluting the strong Apple brand," Cahall added in the report. "We think a deal would be highly accretive (to earnings). We estimate 15% to 20% accretion on a 40% premium. While it's tough for us to assign an absolute probability, we think the fact that investors are routinely talking about it is enough to support Disney shares."
Apple has more than $200 billion in overseas cash.
AT&T (T) is seeking Trump administration approval to acquire media giant Time Warner (TWX) for $85 billion.
Disney often is speculated about in M&A talk — whether it's as a seller to Apple or a buyer of Netflix (NFLX). In early 2017, some analysts speculated Verizon Communications (VZ) could also be a match.
IBD'S TAKE: Disney stock has climbed 8.5% in 2017 while shares in Apple have jumped 22% on expectations of a strong iPhone 8 upgrade cycle later this year. Learn more at IBD Stock Checkup.
A deal with Verizon would give the Mouse access to top-notch wireless and wireline broadband networks to whisk content directly to consumers, analysts say.
Cahall says Apple would make a good merger partner at the right price.
"We think a 40% premium is warranted given the 35% (AT&T paid for) Time Warner but this would still deliver 15% to 20% EPS accretion given Apple's cash balances and Disney's existing low net debt," he wrote.
Walt Disney shares rose 17 cents to 113.21 on the stock market today after climbing to 114.25 intraday, their best level since December 2015. Disney is in range from a 112.09 buy point.
Apple fell 0.5% to 141.05, just below a 141.12 buy point.
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