Rumors about Disney buying Netflix are circulating

Walt Disney Co. is on the prowl to acquire assets to add to its Goliath media and entertainment business; at least that’s the chatter on Wall Street.

Following reports last week Disney was considering a bid for the floundering but pioneering social-media platform Twitter Inc. the House of Mouse’s name was tied to interest in another buy: Netflix Inc.

Shares of Netflix had moved slightly lower in active trade late Tuesday after tacking on 1.6% in premarket trade following the rumors, which began Friday and carried over through the weekend. Netflix shares closed up more than 4% on Monday as volume reached 15.3 million shares, about double the full-day average.

A Netflix spokesman told MarketWatch the company doesn’t comment on rumors and declined to say anything further since the company is in a blackout period ahead of reporting earnings on Oct. 17. A spokeswoman for Disney wasn’t immediately available for comment.

The timing of a possible Netflix buy would be tough to call, according to R.W. Baird analyst William Power, who wrote in a note to clients Netflix has been the subject of “recent M&A rumors,” and “whether Disney, Apple or someone else, Netflix could become a target.”

Power rates Netflix shares neutral with a price target of $94, which is 8.4% below current levels.

With Disney’s record of successful high-profile acquisitions, some analysts say making a play for a company to move ESPN parent Disney further into streaming video, especially in sports content, makes perfect sense. Last week, Albert Fried analyst Richard Tullo said a Disney deal for Twitter could make sense for exactly that reason.

“On the surface, a deal [or Twitter] makes no sense, but if you think streaming video is potentially disruptive to live sports then there is a strategic case to be made,” he said.

Disney shares have underperformed this year, moving down 12% through Monday, while the Dow Jones Industrial Average has climbed 4.8%. The company’s film business has had a solid year, grossing more than $2 billion at the domestic box office so far and topping all other major Hollywood studios, and Disney successfully opened its $5.5 billion theme park and resort in Shanghai, China. But concerns over network ratings, cable-cord cutting and growth at ESPN have cast a shadow over the company.

Shares of Netflix have declined 10% in the year to date as investors remain wary of the company’s slowing subscriber growth.

Source: MarketWatch