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Should Disney Spin Off ESPN and ABC? It's Harder Than It Looks.Should Disney Spin Off ESPN and ABC? It's Harder Than It Looks. Levisohn, Ben. Barron's (Online); New York Walt Disney stock has become a target for activist investors —and ABC and ESPN could be on the chopping block . That Disney would become a target of activist investors shouldn't come as a surprise. The company's earnings have been sliding, from a peak of $8.36 a diluted share in fiscal 2018 to $1.72 in fiscal 2022, according to FactSet. Spending on streaming has cost a fortune. And Disney stock dropped 44% in 2022. Against that backdrop, Trian's Nelson Peltz announced last week that he had taken a large stake in Disney stock, joining Third Point's Dan Loeb, who got involved last year. Still, beyond reinstating the dividend and getting profitable on streaming, no one seems to have a clear idea of what Disney should be doing. But once again, a sale of some of Disney's traditional TV assets is coming up as a possibility. In an article in the New York Post over the weekend, Charles Gasparino wrote that "[bankers] tell me sales of Disney's sports cable network ESPN , and maybe all of its ABC television network, are on the table and a real possibility to appease Peltz's desire for a higher stock price." Disney didn't immediately respond to a request for comment on a possible sale, but at least one Wall Street analyst took the report seriously enough to weigh in. That would be Wells Fargo analyst Steven Cahall, who has been in favor of such a move . It's not about "financial arbitrage" but creating two companies that are easier for investors to wrap their heads around. Disney proper would be an intellectual property "pureplay," while the other would be a play on sports and traditional television. "Our view remains that such a separation would allow investors to better price the risk of linear enveloped at the ESPN/ABC entity (ideally with modest leverage), while stand-alone DIS would garner incremental shareholders as a pureplay on IP," Cahall writes. That word, "leverage," is the key. "The biggest obstacle is that standalone DIS needs to delever and ESPN/ABC can't lever too much due to cord cutting and sports cost increases," Cahall explains. Disney stock has gained 1% to $ 100.34 while the S&P 500 has dipped 0.1%, and the Nasdaq Composite has gained 0.2%. |
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