• Marvel’s 3RD party relationships: It doesn’t sound like Disney is intent on quickly cancelling or restructuring Marvel’s deals with 3rd party licensors like Hasbro and Activision. It commented that at the expiration of these deals it will take a look at each independently and see whether the terms make sense for them to bring in house. In video games, in particular, DIS mentioned that we should continued to expect a mix of internal and external content
• Price: Still seems expensive (but not outrageous) to us even with the obvious business overlap, especially given the near-term dilution. While not as expensive as Pixar (which was incredibly expensive), Marvel doesn’t bring 1) Steve Jobs to the board of directors, 2) the creative team, 3) the track record, 4) the creative direction for other business units
• Our downgrade: After hanging onto an Outperform rating for 3.5 years and gleaning a 115% return we downgraded MVL on August 5th. We jumped off the boat 26 days too early. *Sigh*. We were excited about Iron Man 2 personally and professionally, but lacked the conviction in Marvel’s upcoming initial 2010 forecast. Given the timing of this announcement, Marvel may have as well. Marvel will likely report its Q3 results before the deal is closed, but likely won’t be compelled to issue 2010 guidance

Conclusion:
Unchanged for MVL. See below
Modest negative for DIS. The dilution in F10 and lack of accretion in F12 is modestly worse than our original back-of-the-envelope analysis. Disney doesn’t expect to extract meaningful cost synergies after the close of the transaction. It sounds like from a financial basis, Marvel will operate in largely a similar way.

(From this morning)
Event:
Disney has announced its intention to buy MVL for $50 per share or $4B
MVL shareholders will receive $30 per share and 0.745 Disney shares for each MVL share
Both boards have approved the transaction, but it will require approval from MVL shareholders
Conference call @ 7:15 PST. 800-260-8140

Conclusion:
Positive for MVL. Trading at $38.65 we think shareholders will likely approve the deal. Given that the MVL board has approved the deal, it’s unlikely that another bidder is hanging around.
Mixed for DIS. The acquisition makes strategic sense. Marvel adds 5,000 characters to Disney’s IP library, which Disney can leverage across its properties. While a strong fit for any media company, Disney’s theme parks make it more monetizable than for others. Marvel’s characters (especially at the box office) tend to attract an older consumer, but this will help Disney bolster a hole in its theatrical business for teens. Marvel’s licensing business is very similar to Disney’s and has notable synergies. The only thing we question is price, which at $50 is 23.3x our 2010 EPS estimate of $2.15. This is a significant premium to its peers. It’s not shocking that Disney is willing to pay up for well-known IP like it did with Pixar (it paid $7.4B for in 2006 including $1B in cash). While Marvel certainly has a larger number of well-known characters than Pixar, it doesn’t have the internal track record at the box office that Pixar did. Further, Pixar brought Disney creative direction, which added to the price. Marvel does not bring significant internal creative talent in the movie business.

Derivatives:
ERTS: There are still those that believe that Disney is going to buy Electronic Arts any minute now. We continue to think that is unlikely and that this deal would push out any announcement even if it were to happen.
ATVI: Activision is already owned by Vivendi, so there is no impact on an acquisition premium. Activision does make the Spider-Man and X-Men games for Marvel. Disney will likely take these properties (and all MVL properties) in house over the long-term. The next Spider-Man film is slated for 2011, which Activision has rights to, so the impact would come at some time after that release. It’s unclear what the future of the X-Men franchise is.
THQI: THQ just signed Marvel Superhero Squad, which it has multiple year rights for. If the TV show is successful then Disney may take the rights back over the long-term. If it isn’t successful then it isn’t meaningful anyway

-Evan

Details:
Cathy Smith will replace David Carlson, who has been CFO of GameStop since 1996
• Ms. Smith most recently served as EVP/CFO of Centex (from Oct. 2006)
• She also served as CFO of Kennametal, Inc., a global supplier of tooling, engineering components and advanced materials; Bell Systems, a business segment of Textron; and the Intelligence and Information Systems Business of Raytheon Company
• Ms. Smith holds an MBA from USC and a bachelor’s degree in business economics from UC Santa Barbara

David Carlson will stay on with the company to help with the transition until 3/1/2010. He has been with GameStop since 1996
• There has been no reason given for his departure other than he is retiring. He is 46 years old
• Carlson recently purchased 25K GME shares for an average $22.48 on 5/27/09
• He purchased another 25K GME shares for an average $25.08 on 6/2/09

In April of last year, Steve Morgan, GameStop’s President, resigned to pursue other opportunities. He had been with the company for 3 years
Last year Dick Fontaine, longtime CEO and Chairman, handed the CEO title to Dan DeMatteo and is now Executive Chairman

Conclusion:
Negative. At best, the departure is the loss of an experience executive. At worst, it could indicate something more unsightly, although at this time there is nothing to indicate this is the case
We continue to believe that GameStop is challenged by spotty industry trends, a weak economy, increasing competition and now a CFO transition, and continue to direct investors elsewhere