M&A (mergers and acquisitions) deal as an instrument that increases Disney’s Global competitiveness

The contribution of each M&A deal in the global competitiveness of The Walt Disney Company can be evaluated by the criteria listed in Table 1.

Before TWDC acquired Pixar in early 2006 its market capitalization was 52.8 billion US dollars (2005). However a year after the acquisition, at the end of 2006, the market capitalization increased and was 61.02 billion US dollars.

Table 1. The Features of M&A deals that Influenced the Global Competitiveness of TWDC

Deals	Features in comparison to the prior acquisition year
	Market Capitalization (bil. USD)	Revenue The Walt Disney Company Annual Reports 2005-2014	Net Income The Walt Disney Company Annual Reports 2005-2014	General Benefits to TWDC	Service and Products Diversification	Audience Diversification	Management	Overall Fame
TWDC - Pixar (2006)	61.02 (+13%)	+3,5%	+17,07%	Advanced Technologies (3D), new ideas, mutual promotion, synergy, less competition	New cartoons, computer games, mobile apps, merchandize	-	Steve Jobs (former shareholder and one of the directors of TWDC)	++
TWDC - Marvel (2009)	34.79 (-56%)	+5,03%	+12,05%	New ideas, characters, synergy, less competition	Feature films based on Marvel Comics in 3D, computer games, mobile apps, comics, toys	boys, adults	Ike Perlmutter (CEO of Marvel Entertainment)	+++
TWDC - Lucasfilm (2012)	71 (+1%)	+6,14%	+7,09%	Tecnologies, Acces to Lucasfilms's audio and visual producing companies (Industrial Light & Magic and Skywalker Sound )	Star Wars, games, merchandize	adults	George Lucas (creative consultant of "Star Wars" film), Cathleen Kennedy (the president of Lucasfilm and brand manager and executive producer of the future "Star Wars")	+

Afterwards in 2008 the company lost its position (-56%) mostly because of Global Financial Crisis, however, it made a decision to buy another company (Marvel Entertainment, LLC) in December, 2009. Since then its market capitalization grew nearly twice from 34,79 billion USD (2009) to 61,00 billion USD (2010). That means that the company's size, as opposed to sales or total asset figures grew significantly. Acquiring Marvel was one of the leading factors that helped TWDC to get back and even overcome the pre-crisis market capitalization level. In October, 2012 when the company acquired Lucasfilm it managed to move forward even more: from 71 billion USD in 2012 to 94,71 billion USD in 2013 (25% growth). Today TWDC holds the first place according to its market capitalization (125,77 billion USD) in the entertainment segment. From Table 2 it can be seen that after each purchase the market share of TWDC grew except the time of Global Financial Crisis (2008-2009). The price of TWDC's shares grew four times since 2005 (from 27,85 USD as to 3 January, 2005 to 109,24 USD as to 12 May, 2015).

Table 2. Market Capitalization of TWDC (in bil. USD), 2005-2014

Year	Market Capitalization	Increase
2005	52,80
2006	61,02	13%
2007	67,26	9%
2008	54,10	-24%
2009	34,79	-56%
2010	61,00	43%
2011	70,28	13%
2012	71,00	1%
2013	94,71	25%
2014	125,77	25%

When talking about the revenues, The Walt Disney Company managed to increase its total revenue by 34,56% after the first acquisition in 2006 (2005 - 31,944 million US dollars, 2014 - 48,813 million US dollars).

Chart 1. Market Capitalization of TWDC (in bil. USD), 2005-2014

The largest revenue increase is seen after the Lucasfilm purchase in 2012 (6,14% growth) while the revenues growth after Pixar and Marvel acquisition were 3,05% and 5,03% correspondingly. The financial crisis in 2008-2009 badly influenced the company's revenue and net profit. So, it is difficult to estimate whether Marvel acquisition was successful in terms of revenue increase or not. However, since TWDC develops its business in different segments it faces less risk because of an economic or competitive factor that lowers the revenue for a single segment and results in more chances to expand in multiple markets. Today, after the last M&A deal TWDC's revenue continues to grow and that is why it can be assumed that mergers and acquisitions have a positive impact on the company's activity, giving it the opportunity to benefit from diversification and synergy.

Table 3. Revenue and Net Income of TWDC (in bil. USD), 2005-2014 The Walt Disney Company Annual Reports 2005-2014

Year	Revenue	Net Income
2005	31,944	5,137
2006	34,285	6,491
2007	35,510	7,827
2008	37,843	8,445
2009	36,149	6,672
2010	38,063	7,586
2011	40,893	8,825
2012	42,278	9,964
2013	45,041	10,724
2014	48,813	13,005

Chart 2. Revenue and Net Income of TWDC (in bil. USD), 2005-2014

The Walt Disney Company offers a wide range of goods and services for all tastes, cultures and ages: movies, shows, themes parks, radio stations and consumer products. TWDC makes its products really differentiated within its company and from products from acquired companies.

Pixar acquisition had a great impact on TWDC's diversification. One of the main inputs of Pixar Entertainment in TWDC is its technologies. Traditionally Disney used to apply hand-drawn animation which was no longer successful. However, Pixar was involved in developing digital animation technology, including 3D film production. The former, sensitively feeling the market situation, offers modern stories and mobile heroes organically performing in 3D format. Despite shortage of kindness, touching, charm and romanticism Pixar characters win the hearts of the audience by their energy and simplicity.

Another important benefit is synergy. Pixar was always a strong competitor and merging with TWDC was advantageous to the both companies. First of all, while combining their technologies and ideas companies can achieve more success in the entertainment market. Their mutual popularity grew and finally the revenues increased. The Pixar now has the access to the Disney's production facilities and Disney can use Pixar characters in its merchandize and Disneyland parks attractions.

When TWDC acquired Marvel Entertainment, Robert Iger stated that “Marvel has done a good job of understanding its characters and story lines. What was attractive to us about this deal was that it was about acquiring writers who know these characters and story lines well”Publishers Weakly. Moreover, The Walt Disney Company got interested in Marvel not only because of the great number of potentially profitable heroes but also because Disney had practically no production focused on boys before: the company had much more princesses and beauties it in its theme parks, TV channel, cruise lines, and merchandising segments. Marvel Comics characters are now a key element in theme parks revenue. Also Marvel brands provided the company with significant long-term growth and value creation.

The successful acquisitions of Pixar Animation Studios and Marvel Entertainment have proven the company's ability to nurture strong brands and add their creative content to its potential and value. These acquisitions have boosted company's growth opportunities and increased diversification even more than it used to be. With Marvel, the company can produce movies with new characters that did not belong to Disney before (Iron Man, Thor, Captain America, etc.); with Pixar, Disney can take advantage of technological innovations and creativity in the animation world, which have been helping it to improve the quality of recent animated films released by the company. Undoubtedly, these acquisitions will continue to pay off for Disney in the foreseeable future.

Acquiring Lucasfilm gave TWDC the first-class portfolio of content including one of the greatest family franchises "Star wars” that will be combined with the unique and unsurpassed creative ideas of Disney. This transaction will provide the stable growth and considerable profit for many years.

When TWDC was buying Lucasfilm it set the price as 4,1 billion US dollars. The fact that the goodwill was estimated as practically half of the deal price (2,6 billion US dollars) means that Disney highly appreciates the value that will be added to the company afterwards from leveraging Lucasfilm intellectual property across TWDC's distribution channels.

Moreover, Lucasfilm includes Industrial Light & Magic and Skywalker Sound, which provide visual and audio effects and other post-production services to the Company and third-party producers. The new added company's brand was included primarily in Disney's Studio Entertainment and Consumer Products segments increasing the level of diversification of products, services, audience and business in a whole.

Together Disney's M&A deals with Pixar, Marvel and Lucasfilm gave the company great portfolios of content, new ideas, advanced technologies, audience and brought some incredibly innovative storytellers to Disney, who managed to expand the company's creativity in new directions.

Moreover, the acquisitions of Pixar, Marvel and Lucasfilm gave The Walt Disney Company not only higher profits and product diversification but also a skillful management team such as Steve Jobes, who was a large shareholder and one of the Directors of TWDC, Ike Perlmutter, who remained the CEO of Marvel Entertainment, George Lucas, creative consultant of "Star Wars" film and Cathleen Kennedy, the president of Lucasfilm and brand manager and executive producer of the future "Star Wars" film. All these people contributed to the new experience for The Walt Disney Company and better integration of the acquired companies.

Thus, The Walt Disney Company reached high level of success by focusing on three strategic leverages that open the limitless potential of the company: creativity, innovative technology and global expansion. Since launching this strategy, The Walt Disney Company has delivered some of the world's most extraordinary entertainment experiences as well as significant growth and a total shareholder return of 317%.

3. M&A Deal as an Instrument that Increases Disney's Global Competitiveness

3.1 Influence of M&A Transactions on The Walt Disney's Company's Business Segments

Every year the TWDC becomes stronger in the world entertainment market. Today, the company occupies one of the leading positions in this branch. The main competitors in its various segments include such media conglomerates as Viacom Inc., Time Warner Inc., Twenty-First Century Fox, CBS, Directiv Group, Inc. and Comcast.

In many respects the success of The Walt Disney Company in the market is achieved due to the chosen strategy of merges and acquisitions. It is said that Pixar, Marvel, and Lucasfilm acquisitions have “proven the company's unique ability to nurture strong brands and expand creative content to its fullest potential and maximum value” The Walt Disney Company Annual Report, 2012. Thus, it is possible to draw a conclusion that M&As increased Disney's global competitiveness both in entertainment market and in all its separate operating segments.

As it was already mentioned in Analytical part of the paper, the company carries out its activity in five segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive Media. Each of these segments is very important for the company and makes its business more diversified for Disney's customers. Having considered each segment in particular, namely its contribution to TWDC's activity, we will be able to define how M&A deals affected these segments. Also it will help us to reveal the weakest segment, which can be strengthened using this type of transactions.

Media networks

Media Networks stands out as the largest driver of TWDC's performance each year. Since 2005 the revenues in this segment grew 38% and the operating income increased 62%. In 2014 revenues reflected 4% growth in comparison to the previous year. All these changes were caused to a high extent due to the inclusion of Pixar, Marvel and Lucasfilm to The Walt Disney Company business.

Table 4. Revenues and Operating Income of TWDC by Media Network Segment The Walt Disney Company Annual Reports 2005-2014 (in bil. USD)

Year	Revenues	Operating Income
2005	13,207	2,749
2006	14,1	3,48
2007	15,046	4,285
2008	15,857	4,981
2009	16,209	4,765
2010	17,162	5,132
2011	18,714	6,146
2012	19,436	6,619
2013	20,356	6,818
2014	21,152	7,321

Talking about competitors in this segment, it should be mentioned, that Media Network has the greatest number of competitors among all the TWDC's segments. They include Directiv Group, Inc. (33,1%), Viacom Inc. (9,85%), Time Warner (9,67%), CBC Corporation (8,38%) and some others that have minor market share. TWDC owns 21,74% of the market, which makes it the 2^nd in Media Network segment.

Parks and Resorts

Parks and Resorts segment play a crucial role in raising strategic awareness for Disney's brands and fully engage the audience around the world.

In this segment TWDC has ten large competitors worldwide. The strongest among them are - Merlin Entertainments Group in United Kingdom (15%), Universal Parks and Resorts (9,6%), OCT Parks China (6,9%) and Six Flags Entertainment Corp (6,9%). However, Disney's Parks and Resorts remain the leader in this segment with 35% market share.

Table 5. Revenues and Operating Income of TWDC by Parks and Resorts Segment The Walt Disney Company Annual Reports 2005-2014 (in bil. USD)

Year	Revenues	Operating Income
2005	9,023	1,178
2006	9,925	1,534
2007	10,626	1,71
2008	11,504	1,897
2009	10,667	1,418
2010	10,761	1,318
2011	11,797	1,553
2012	12,92	1,902
2013	14,087	2,22
2014	15,099	2,663

Revenues and operating income increase from year to year (60% rise in revenues and 44% rise in operating income since 2005). The tendency is that positive mostly because of new attractions based on Pixar, Marvel and Lucasfilm stories which led to park attendance growth and higher occupied room nights at Walt Disney World Resort and Disneyland Resort.

Studio Entertainment

The Studio Entertainment segment remains the main and the leading part of TWDC business though it is not that profitable as Media Network segment. It provides vivid and happy ending stories, memorable characters and remarkable worlds that make Disney one of the best-known hallmarks in the world.

In 2013 The Walt Disney Animation Studios reclaimed its rightful place among the world's best studios in animation, thanks to the continuing creative resurgence that began with the acquisition of Pixar. The creative lift brought by Pixar is evident not just at the Disney Animation Studios, but also at Consumer Products and at Parks & Resorts, where Disney's characters and stories can be experienced in new and innovative ways. Pixar illustrates the level of commitment to quality and creativity The Walt Disney Company strives for The Walt Disney Company Annual Reports 2007. Moreover, Lucasfilm results are included primarily in Studio Entertainment and Consumer Products segments.

Table 6. Revenues and Operating Income of TWDC by Studio Entertainment Segment The Walt Disney Company Annual Reports 2005-2014 (in bil. USD)

Year	Revenues	Operating Income
2005	7,587	207
2006	7,529	729
2007	7,491	1,201
2008	7,348	1,086
2009	6,136	175
2010	6,701	693
2011	6,351	618
2012	5,825	722
2013	5,979	661
2014	7,278	1,549

As it can be seen from the table, that revenues and operating income of this segment fluctuated during 2005-2014 years. However, in 2014 the Studio Entertainment Segment managed to get the highest operating income in comparison to the other years. The more beloved by everyone films are coming, the higher the profit is. Today The Walt Disney Company takes the 3^rd place after Time Warner (38,08%) and Twenty-First Century Fox, Inc. (27,48%), having 18,54% of market share in this segment. Being the 3^rd does not mean that the company does bad, it means that it has strong competitors and that it has to do its best in order to be the 1st. We anticipate, that at the end of 2015 after the release of a new episode of Star Wars the situation will change dramatically. The acquisition of Lucasfilm should become a special leverage for Disney, which will help it to struggle the rivals, despite the considerable gap of 8,94% in market share.

Consumer Products

Disney Consumer Products segment plays a vital role in the company's global growth. This segment leverages the company's high-quality content, builds powerful franchises and boosts Disney's influence in markets around the world.

TWDC markets Disney, Pixar, Marvel and Lucasfilm themed products through retail stores operated under the Disney Store name and through internet sites DisneyStore.com, MarvelStore.com in North America (214 stores), Western Europe (88 stores) and Japan(46 stores). For example, Marvel Publishing creates and publishes comic books and graphic novel collections of comic books in print and digital formats. Marvel Publishing also licenses the right to publish translated versions of these comic books, mostly in Europe and Latin America.

Fueled by the enormous creativity of Disney, Pixar, Marvel and Lucasfilm, during 2014 Disney Stores delivered their best performance to date. Disney Consumer Products delivered revenues of nearly 4 billion USD and operating income of more than 1,3 billion USD.

Table 7. Revenues and Operating Income of TWDC by Consumer Products Segment The Walt Disney Company Annual Reports 2005-2014 (in bil. USD)

Year	Revenues	Operating Income
2005	2,127	520
2006	2,193	618
2007	2,347	631
2008	2,415	778
2009	2,425	609
2010	2,678	677
2011	3,049	816
2012	3,252	937
2013	3,555	1,112
2014	3,985	1,356

This segment benefits greatly from the franchise building process, particularly in licensing. Moreover, high revenues come from the strength of merchandise thanks to Pixar, Marvel and Lucasfilm acquisitions.

The main competitors of TWDC in the segment are Mattel, Inc. (38.19%) and Hasbro Inc. (25,52%). Disney takes the 2^nd place with 27,07% of market share. Both competitors operate only in toy producing segment. That means that Mattel and Hasbro put all their efforts in toy merchandize, whereas The Walt Disney Company has four more segments and nevertheless achieved significant results.

Interactive Media

Interactive segment is the youngest among TWDC's segments. It started its operation in 2008 after the merger of Disney Interactive Studios and the Walt Disney Internet into a single business unit which is called Disney Interactive Media Group. Disney heads believe that video gaming is a key growth opportunity over the next five to seven years as it allows extending the existing characters and brands and delivering stronger returns from the key franchises The Walt Disney Company Annual Reports 2007.

The increase in game sales and subscriptions revenue was driven by an increase of 25% from higher self-published console game revenues due to the fourth quarter release of Disney Infinity (new video game platform) and 7% due to the inclusion of Lucasfilm's interactive games business.

Table 8. Revenues and Operating Income of TWDC by Interactive Media Segment The Walt Disney Company Annual Reports 2005-2014 (in bil. USD)

Year	Revenues	Operating Income
2005	?	?
2006	?	?
2007	?	?
2008	719	-258
2009	712	-295
2010	761	-234
2011	982	-308
2012	845	-216
2013	1,064	-87
2014	1,299	116

Operating results for the video game business fluctuate due to the timing and performance of video game releases, which are determined by several factors, including theatrical releases and cable programming broadcasts, competition, and the timing of holiday periods. Revenues from some of its online and mobile operations are subject to similar seasonal trends.

Disney has a lot of rivals, which compete with it in production of video games and online sites. Interactive Media segment has only 5,54% of market share today and has a great number of competitors. The strongest ones are Microsoft Corporation (13%), Sony (13%), Activision Blizzard (12%) and Electronic Arts (11%) which operate in computing and gaming hardware industry. We assume that TWDC should not seek to become a leader in this segment, but it should undoubtedly improve its positions in the market greatly.

Disney, Pixar, Marvel and Lucasfilm are an outstanding collection of brands that grow stronger every day as new platforms and new markets provide enormous opportunities for high quality content and experiences.

3.2 Improving the Weakest Segment of The Walt Disney Company Using M&A Strategy

Disney's Interactive Media segment is the one with the lowest market share (5.54%) mostly because of being the youngest (since 2008) among Disney's business segments and, therefore, the least developed. Moreover, there are a lot of strong competitors as this segment today is one of the fastest growing and promising ones. Every year the number of competitors is increasing due to the development of new technologies. That means that the threat of new players in the market is high. At the same time the power of suppliers is very low power because consumers have the possibility to download video games from many different resources or play online. Also, consumers can buy consoles (Xbox, PlayStation, Nintendo Wii etc.) with games for every taste. That is why the customers' power unlike the suppliers' power is extremely high.

While strengthening its position in the video game market, Disney will not only get higher profits, but it will also increase global competitiveness of TWDC's whole entertainment business.

In order to develop the segment, Disney Interactive Media Group (DIMG) should acquire more game studios in order to gain a broader understanding and experience in the video game industry. For instance, acquiring Playdom in July 2010 was a step in the right direction because of the gained experience in the casual games market added to DIMG's gaming portfolio. TWDC bought Playdom for 763 million USD, which was №3 social game company with about 42 million monthly players at the time of the acquisition deal.

TWDC's acquisition of Marvel also granted DIMG access to their wide range of characters that can attract new customers, especially among the male population.

However, there are some investments that failed with Disney receiving minimal benefits from the acquisition. For example, a former subsidiary of TWDC, Black Rock Studio, was closed down in July 2011 after a year of functioning. The reason of the failure is inability of a firm to integrate into the core competencies of the acquirer. Two extremely different game segments were placed together and this fact caused misfit and created problems, which prohibited sustainability in the long run. The formation of separate divisions will thus be necessary for the game development, so that these entities have the autonomy to decide what is best for them. Implementing this strategy would allow different approaches to game development while still focusing revenue generation by producing blockbuster games that are popular among avid gamers.

On the whole, the gaming industry is changing rapidly with the emergence of social and mobile gaming. With huge corporations that have the ability to influence and change policy in a short period of time, Disney has to adapt to changes in the competitive landscape by continuing the restructure of the company via making more profitable acquisitions.

Having examined some Disney's M&A deals in this segment, we have identified the following criteria, which we will follow when choosing the right candidate for The Walt Disney Company to buy. The candidate company should:

- act independently;

- be quoted on the stock exchange market;

- do its business in the USA (in order to aviod post-merger integration difficulties);

- be able to provide TWDC with new technologies and experience;

- give access to new market niches;

- have positive growth trends (revenue, net profit, EBITDA etc.)

- have growth potential;

- provide anticipated increase in revenues;

- provide anticipated increase in turnover;

- provide anticipated growth of segment's market share;

- provide anticipated growth of stock price of the company;

We have selected four companies in Interactive Media segment with approximately the same market share. In our opinion after their acquisition TWDC will be able to improve its position in this segment, and, cosiquently, increase its competitiveness in the whole entertainment market. These companies are - Nintendo Co., Ltd. (8%), Electronic Arts, Inc. (11%), Activision Blizzard, Inc. (12%) and Microsoft Co. (13%). After evaluating each of them, we will choose one company that fits the best for the M&A deal with The Walt Disney Company. First of all, we will look at each of them and define the benefits that these companies can bring to TWDC. Then we will use the method of coefficients (a comparative approach), which is aimed to determine the value of the companies when compared with similar ones in the same industry. Finally, we will choose one company and anticipate the synergetic effect of the M&A transaction. We assume that the result will be positive and will bring The Walt Disney Company to an increase in global competitiveness.

1. General information and benefits for TWDC of each target company

Nintendo Co., Ltd is a Japanese company, established in September 1889. It specializes in creating video games and game consoles. The main advantages of the company are: recognition and popularity of the brand, diversified products, innovative and easy-to-use products as well as low production costs, which allows the company to attract consumers from all the economic classes.

The most famous console by Nintendo are - Game Boy, Super Nintendo, Game Boy Color, Nintendo DS, Game Boy Micro, Wii, Nintendo 3DS, Wii mini and Nintendo 2DS. Among the most famous and beloved gamed produced by Nintendo are - Super Mario, Sonic, Rayman, Warms and many others.

If Disney acquires this company, it will be able to work in a new niche: games on game consoles. As Disney already produces games for game consoles it will be able to sell both complement products, and thus increase brand awareness and also receive additional income from the sale of these consoles.

Electronic Arts, Inc. is an American corporation that distributes video games. The company was founded in May 1982 and became one of the first companies in the gaming industry. The main benefit of Electronic Arts company is the extensive content library which gives enormous power to the holder of that content. The company can demand royalty payments for any use of that content.

Currently, the most successful products are sports games published under the label of EA Sports, games based on popular movie licenses, such as Harry Potter and the series of games such as Need for Speed, FIFA, Medal of Honor, The Sims, Battlefield and the later games: Burnout and a series of Command & Conquer.

Another advantage of the Electronic Arts are its subsidiaries, which are quite large companies with a substantional weight on the video game market: BioWare, Criterion Games, EA Canada, EA Digital Illusions CE, EA Montreal, EA Tiburon, Ghost Games, PopCap Games, The Sims Studio and Visceral Games.

Activision Blizzard, Inc. - is the world's largest interactive gaming company that successfully combines media, technology, and entertainment. It was launched after the merger of Activisation and Vivendi Games in December 2007. However, in October 2013 Activision Blizzard repurchased its own shares and got a controlling stake, while the French company Vivendi retained only 83 million units of securities (12%).

The most remarkable games made by Activision Bizzard are - Guitar Hero, Call of Duty, Skylanders, Destiny, World of Warcraft, StarCraft, Diablo and Hearthstone.

The main benefits that Activision Blizzard, Inc. will bring to the Walt Disney Company are the following: highly focused approach (“strive to do a just a few things, but do them exceptionally well”). Moreover, the company claims that everything they do has the potential to be a “breakthrough entertainment experience”. They focus on every piece of capital, talent, innovation, and energy on executing with the highest degree of excellence. The company's specialty is online multiplayer games. In fact, six times in the past ten yaers, Activision Blizzard has created the biggest game of the year and that fact means a lot when valuing the potential acquired companies input.

Microsoft Corporation is one of the largest multinational companies producing software for all kinds of computers - personal computers, game consoles, PDAs, mobile phones etc.. It is the developer of the most widely used software platform - Windows operating systems. Microsoft operates its business in five segments: Windows & Windows Live Division, Server and Tools, Online Services Division, Microsoft Business Division, and Entertainment and Devices Division.

However, the gaming unit (Entertainment and Devices Division) occupies only one-fifth of the entire company and Microsoft will definitely not sell it to Disney as this business segment is becoming more and more popular and profitable today. Therefore, we assume that despite the fact that, for example, Activision Bizzard, Electrinic Arts and Nintendo have almost the same market share, Microsoft is a huge corporation that mostly deals with software, which is not part of Disney's interests. Our primary goal is to improve the position of Disney's Interactive Media segment in order to improve the position of TWDC in a whole and thereby to improve its global competitiveness. Therefore, we assume that Microsoft can be excluded from the list of possible candidates for takeover by Disney.

2. Financial performance of target companies

At this stage, in order to create a shorter list of desired companies, we will analyze financial data of these companies such as net income, revenues, assets, liabilities and others. On this basis it will be possible to define company (ies), which definitely do not meet Disney's requirements.

Table 9. Selected Financial Data of Activision Blizzard, Inc. (in bil. USD)

Activision Blizard	2010	2011	2012	2013	2014
Revenue	4,447	4,755	4,856	4,583	4,408
Net Income	418	1,085	1,149	1,01	835
EBITDA	1,014	1,77	1,579	1,692	1,529
Current Assets	5,385	5,38	6,274	6,241	6,909
Non-current Assets	8,021	7,897	7,926	7,771	7,837
Current Liabilities	2,907	2,556	2,652	2,405	2,714

Table 10. Selected Financial Data of Electronic Arts, Inc. (in bil. USD)

Electronic Arts	2010	2011	2012	2013	2014
Revenue	3,654	3,589	4,143	3,797	3,575
Net Income	-677	-276	76	98	8
EBITDA	-494	-132	254	409	264
Current Assets	2,585	3,032	2,609	2,325	3,138
Non-current Assets	2,061	1,896	2,882	2,745	2,578
Current Liabilities	1,574	2,001	2,12	1,917	2,39

Table 11. Selected Financial Data of Nintendo Co., Ltd. (in bil. USD)

Nintendo	2010	2011	2012	2013	2014
Revenue	15,473	12,424	7,854	6,705	5,587
Net Income	2,519	951	-524	76	-227
EBITDA	4,009	2,179	-301	-251	-357
Current Assets	17,543	17,988	13,833	12,58	10,007
Non-current Assets	1,869	2,029	2,761	2,698	2,758
Current Liabilities	4,492	4,082	1,885	2,052	1,521

According to the analysis of financial performance of Nintendo, Electronic Arts and Activision Blizzard companies, we can conclude that the financial results of all the three companies declined in 2014 compared with the previous years. However, the results of Nintendo have the largest loss since 2011. The main cause of trouble is its reorientation on the market of mobile devices. Customers using digital games only occasionally, refuse to buy specialized devices. They prefer to play games on smartphones and tablets which provide a desired game at a minimum price. This fact is reflected mainly in negative net profit and negative index of EBITDA. Moreover, Japanese law prevents foreign companies from buying out their native companies.

That is why we believe that the Nintendo Company is not suitable for the acquisition for Disney and may be excluded from the list of potential candidates. So now we will compare only two companies - Activision Blizzard and Electronic Arts. In order to understand which one of them will satisfy Disney's need in the growth of its influence in the market of Interactive Media better, we have to consider market multiples, which are the main indicators in the evaluation of companies during the M&A deals.

3. Comparison of market multiples of target companies

In order to make our assumptions more accurate, we calculate the market multiples: market capitalization/earnings (P/E), market capitalization/revenue (P/S), market capitalization/cash flow (P/CF) and market capitalization/book value (P/B). These multipliers will help us to draw conclusions about the value of the company, weather it is overvalued or undervalued by investors.

Table 12. Valuation Ratios of Activision Blizzard, Inc.

Activision Blizard	P/E	P/S	P/CF	P/B
2010	36,8	3,5	11,2	1,4
2011	13,1	3	15	1,3
2012	10,3	2,4	8,8	1
2013	18,3	4	14,6	1,9
2014	17,5	3,3	11,3	2
Industry Avg	27	4,7		3,2

Table 13. Valuation Ratios of Electronic Arts, Inc.

Electronic Arts	P/E	P/S	P/CF	P/B
2010		1,6	16,9	2,3
2011		1,8	28	3
2012	26,7	1,2	12,4	2,2
2013	22,88	1,9	10,7	3,5
2014	18,1	3,5	13,4	5,4
Industry Avg	27	4,7		3,2

P/E stands for Price-Earnings Ratio. It is calculated using the following formula:

A high Price-to-Earnings ratio could mean that investors are expecting higher earnings growth in the future compared to companies with a lower P/E ratio. The lower value of the coefficient indicates that profits of the company are estimated at a lower price than the profit of the company with a higher coefficient.

Industry average P/E ratio is 27, Activision Blizzard's ratio is 17,5 and Electronic Art's ratio is 18,1. The ratios are more or less the same and are much lower than industry's average, which means that both companies are undervalued and have a substantial potential for growth. If looking at P/E trend since 2008 we can say that AB ratio is becoming more stable and it helps us to make a conclusion that the company has a high potential but it cannot reach it. Such results can be a good motive for Disney to acquire Activision Blizzard. Talking about EA it is impossible to say, weather the company has a good trend or not. In 2010 and 2011 the company had negative net income, and companies that are losing money do not have a P/E ratio. However, 2012, 2013 and 2014 P/E ratios tend to decline. On the one hand that means that investors do not expect high earnings growth. On the other hand, the company did not reach to peak of its growth and has a potential for it.

The price-to-sales ratio is a valuation ratio that compares a company's stock price to its revenues. P/S is an indicator of the value placed on each dollar of a company's sales or revenues. This ratio is most relevant when it is used to compare companies in the same sector. A low ratio indicates possible undervaluation, while a ratio that is significantly above the average may suggest overvaluation of a company. It is assumed that the undervalued stock should be bought whereas the overvalued one should be sold since their market value must strive for a fair price.

The P/S ratio is calculated using the following formula:

As with the P/E ratio it can be concluded that both companies are undervalued because their rates are lower than the industry's average P/S ratio (4.7), giving them the opportunity to develop. However, this figure is not far behind the average, that is why we can conclude that they are not junk companies. However, on the contrary, they are quite promising and are not sold at an inflated price.

The P/E ratio is the ratio of stock price to earnings of the company which means that the lower the ratio is, the higher the company's revenues are and lower the share price is. Thus, we can conclude that Activision Blizzard and Electronic Arts have an income that is high enough to improve their operations, and may be considered as suitable candidates for the acquisition by TWDC.

The price-to-cash-flow ratio (P/CF) is an indicator of a stock's valuation. If P/CF is very low, it means that the stock is undervalued, while a higher index means potential overvaluation. The ratio takes into consideration a stock's operating cash flow, which adds non-cash earnings such as depreciation and amortization to net income. It is especially useful for valuing stocks that have positive cash flow but are not profitable because of large non-cash charges.

It is calculated as following:

The P/CF ratio has the same trend as P/E and P/S ratios have. Both companies have more or less the same figures. That means that Activision Blizzard (11,3) and Electronic Arts (13,4) are again equally undervalued on the market of video games.

A P/B ratio is usually used to compare a stock's market value to its book value and is calculated as following:

A lower P/B ratio usually means that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company. This ratio also gives some idea of whether you're paying too much for what would be left if the company went bankrupt immediately.

The P/B ratio is the only indicator where the positions of Activision Blizzard and Electronic Arts diverge. Given that the average P/B ratio for the video game industry in 2014 is 3,2, Activision Blizzard has undervalued stock (P/B = 2) and Electronic Arts has overvalued stock (P/B = 5,4).

Thus, despite the fact that both companies have more or less similar figures, when analyzing financial performance and measuring market multiples, we choose Activision Blizzard for the following reasons: the main financial indicators of Activision Blizzard have more stable trend for improvement than the main financial indicators of Electronic Arts. Also, each valuation ratio for this company shows that it is a little bit undervalued compared to the market average, which not only enables it to develop further, but also makes it more attractive due to the possibility to purchase the company at cheaper stock prices, which soon may rise due to the increasing demand.

3.3 Advantages for The Walt Disney Company after acquisition of Activision Blizzard, Inc.

In order to prove that Activision Blizzard suits to TWDC's acquisition the best it is needed to make assumptions about the future of the main financial indicators of The Walt Disney Company after the M&A deal. Moreover, the value of the combined company has to exceed the separate values of the acquiring company and the target company on the value of the synergies. That is why we also need to calculate the synergetic effect in order to prove that the acquisition satisfies the main motive of all the M&A deals. This will help to make sure that this is the company that will help to improve the global competitiveness of The Walt Disney Company not only in the segment of Interactive Media, but also for the whole company, which is the main objective of this work.

The synergy is calculated using the following formula:

Synergy = V_ab - (V_a + V_b) - P - E,

where: V_ab stands for Value of the joint company after the M&A deal; V_a and V_b - Values of the companies before the M&A deal; Р - acquisition premium paid to the acquired company; Е - expenses incurred during the M&A deal.

There are three main methods to estimate the value of the company -- comparative, cost and income approaches. A universal method of an assessment of the company for acquisition is a method of discounted cash flows (income approach) which we will use to calculate the values of the companies before the deal. To calculate the value of The Walt Disney Company after the M&A deal will be used the comparative method, which consists in determination of the cost of the enterprise by comparison to similar firms and transactions.

For calculation the value of the company using a method of the discounted cash flow the following formula is used:

Where V is discounted value of the company;

· CF is Cash Flow;

· R is the average interest rate for all the sources of the company financing;

· i is time period;

· n is the last year of calculation.

Cash Flow is calculated as follows:

,

Where Investment in Fixed Assets is the difference between FA of current year and the previous one;

· Investment in Working Capital is the difference between Net Working Capital of current year and the previous one.

Table 14. Cash Flows of TWDC, 2006-2014 (in bil. USD)

Year	FA	Current Assets	Current Liabilities	Net Working Capital	Profit After Tax	Depreciation	Investment in FA	Investment in WC	Cash Flow
2009	34.99	11.89	8.93	2.96	3.31	1.74	?	?	?
2010	36.18	11. 55	11.00	0.55	3.96	1.84	1.19	(2.41)	7.01
2011	35.52	13.76	12.09	1.67	4.81	1.96	(0.67)	1.12	6.31
2012	38.58	13.71	12.81	0.89	5.68	2.07	3.07	(0.77)	5.46
2013	41.19	14.11	11.70	2.41	6.14	2.25	2.61	1.51	4.26
2014	42.26	15.18	13.29	1.88	7.50	2.37	1.07	(0.52)	9.32

Table 15. Cash Flows of Activision Blizzard, Inc., 2006-2014 (in bil. USD)

Year	FA	Current Assets	Current Liabilities	Net Working Capital	Profit After Tax	Depreciation	Investment in FA	Investment in WC	Cash Flow
2009	0.36	5.33	2.51	2.82	0.11	0.63	?	?	?
2010	0.50	5.38	2.91	2.47	0.42	0.52	0.14	(0.35)	1.15
2011	0.53	5.38	2.56	2.82	1.09	0.44	0.03	0.35	1.14
2012	0.51	6.27	2.65	3.62	1.15	0.33	(0.002)	0.79	0.70
2013	0.51	6.24	2.41	3.84	1.01	0.32	(0.003)	0.21	1.12
2014	0.50	6.91	2.71	4.20	0.84	0.35	(0.009)	0.36	0.84

The discount rate represents the profitability level to which the investor would agree, making the decision on an investment in a specific project (company). The higher the level of risk is the higher the standard of profitability the investor demands. In this regard calculation of a rate of discount consists in an assessment of the risks connected with an investment of money in a concrete asset.

There are various methods and models of definition a discount rate of a cash flow:

* model, according to capital assets evaluation (CAPM -- Capital Asset Pricing Model);

* method of cumulative construction;

* model of the average cost of the capital (WACC -- Weighted Average Cost Capital).

Calculation of a discount rate according to the model of the average cost of the capital (WACC model), which we chose, is carried out using the formula:

WACC = k_d (1 - t_c) w_d + k_p w_p + k_sw_s,

where kd -- cost of attraction of the loan capital;

* tc -- income tax rate of the company;

* wd -- share of the loan capital in structure of the capital of the company;

* wp -- share of preference shares in structure of the capital of the company;

* ws -- share of common stocks in structure of the capital of the company;

* kp -- cost of attraction of the share capital (preference shares);

* ks -- cost of attraction of the share capital (common stocks).

Thus, the discount rate (R) for TWDC is 10.86% and 10.86% for Activision Blizzard Inc.

During the calculation of the value of the company using a method of the discounted cash flows there is a need for determination of the residual cost of business in the period following after predicted one, which is based on the prerequisite that the company is capable to bring income after termination of the last period.

The residual cost of the company can be calculated according to Gordon's model:

Where -- residual value of the company;

-- income cash flow for the first year after the forecast (residual) period;

R -- discount rate;

g -- long-term growth rates of the company.

The Gordon's model helps to capitalize the revenue after a forecasted period and the cost indexes by means of the coefficient of capitalization, which is calculated as a difference between a discount rate and long-term growth rates.

g(DIS) = 100 Ч (Total capital, fair value₀ Ч WACC - FCFF₀) ч (Total capital, fair value₀ + FCFF₀) = 100 Ч (59.798 Ч 16.51% - 5.818) ч (59.798 + 5.818) = 6,18%

g(ATVI) = 100 Ч (Total capital, fair value₀ Ч WACC - FCFF₀) ч (Total capital, fair value₀ + FCFF₀) = 100 Ч (11,557 Ч 11.55% - 1.078) ч (11.557 + 1.078) = 2.03%

where Total capital, fair value0 = current fair value of company's debt and equity (bil. USD);

· FCFF0 = last year company's free cash flow to the firm (bil. USD), calculated as:

· r is marginal tax rate for the company;

· WACC = weighted average cost of company's capital.

Thus, the residual value of The Walt Disney Company in 2014 is 111.61 billion US dollars and the residual value of Activision Blizzard Inc. is 4.08 billion. US dollars.

Now, we will calculate the values of both companies using the method of the discounted cash flow:

Table 16. Value of TWDC and Activision Blizzard, Inc. in 2014 (in bil. USD)

	DIS	ATVI
2014	89.59	6.11

In order to calculate the anticipated value of The Walt Disney Company after the acquisition of Activision Blizzard we took three M&A deals, which, according to our point of view, are comparable with the examined one : Sony Corp. and Evolution Studios (2007), TWDC and Playdom (2010) and Microsoft Corp. and Press Play (2012). All the three M&A deals were selected according to the following requirements:

· All the deals should be comparable with Disney's deal;

· The acquiring company should be comparable to TWDC in its size, market share and revenues;

· The acquiring company should have an Interactive Media segment;

· The acquired companies should be promising video game companies with significant market share in video game industry;

· All the companies have to be traded on the stock market.

All the financial data was taken from the companies' Financial Reports and values were calculated according the DCF method, observed previously when the values of the Walt Disney Company and Activision Blizzard, Inc. were calculated.

Table 17. The Results of M&A Deal between Sony Corp. and Evolution Studios (in bil. USD)

Sony Corporation -Evolution Studios (2007)	Before Ascuisition (2006)	After Ascuisition (2008)	Margin (%)
Revenue	63.5	88.7	28%
Net Income	0.94	2.69	65%
Value	83.31	12.87	35%

Table 18. The Results of M&A Deal between TWDC and Playdom (in bil. USD)

TWDC - Playdom (2010)	Before Ascuisition (2009)	After Ascuisition (2011)	Margin (%)
Revenue	36.1	40.9	12%
Net Income	3.31	4.81	31%
Value	25.56	42.39	40%

After observing the revenues, net incomes and value of the acquiring companies before and after M&A deals (year before and year after the deal) the average margin was calculated.

Table 19. The Results of M&A Deal between Microsoft Corp. and Press Play (in bil. USD)

Microsoft Corporation - Press Play (2012)	Before Ascuisition (2011)	After Ascuisition (2013)	Margin (%)
Revenue	69.94	77.85	10%
Net Income	23.15	21.86	-6%
Value	187.14	193.66	3%

Table 20. The Average Margin in Revenue, Net Income and Value of the Acquiring Companies a Year after the Deal (%)

	Average Margin
Revenue	20%
Net Income	28%
Value	26%

Afterwards, we applied this correction to The Walt Disney Company and got the anticipated value of the company after the acquisition of Activision Blizzard Inc. and calculated the synergetic effect after the acquisition, taking into consideration the anticipated premium and anticipated expenses on the deal.

To calculate the premium for the M&A deal we will use the premium which selected the Vivendi Games Company upon purchase of a controlling stake of Activision Blizzard in 2007. That is the current stock price of the company plus 24% . As of May 15, 2015 the price of one share of Activision Blizzard Inc. is 25.42 US dollars. Thus, if Disney wants to became the holder of a controlling stake of the acquired company (we will assume that it will be 52% of AB shares), it will pay a premium of 2,3 billion US dollars from a total cost of the transaction which according to our calculations will make 11,9 billion US dollars.

In accordance with EY Company's report, the average value of expenses on integration of business after M&A deal completion is 14% from the total cost of the deal. That is why we assume that integration expenses will be 1.67 billion US dollars.

Table 21. Synergetic Effect for TWDC after M&A Deal with Activision Blizzard (in bil. USD)

	TWDC (2014)	Activision Blizzard (2014)	TWDC + Activision Blizzard	TWDC + Activision Blizzard (M&A)	Premium	Expenses	Synergy
Revenue	48.81	4.41	53.22	58.58
Net Income	13.01	835	848.01	16.65
Value	89.59	6.11	95.70	112.88	2.3	1.67	25.43

After all the calculations the estimated revenue will make 58.58 billion US dollars, 17% greater than the revenue in 2014, and the anticipated net income will compose 16.65 billion US dollars, which is 22% more than in 2014. The synergetic effect turned out to be 25.43 billion US dollars, which is a very good result. Thus, we proved that Activision Blizzard Inc. suits for TWDC's acquisition and is able to increase the global competitiveness of The Walt Disney Company in the entertainment market.

According to the nature of integration this M&A deal will be considered as horizontal, according to the nationality of merged companies it will be a national deal and according to the relationship between management the deal will be a friendly one.

To sum up, we are quite sure that the M&A deal between The Walt Disney Company and Activision Blizzard Inc. will bring not only economic benefits to Disney such as income growth, but also will give it new technologies, experience and increase its share in the video game market. Having increased its share in this market, TWDC will be able to increase the influence in the whole entertainment market and respectively will manage to increase its global competitiveness. Thus, The Walt Disney Company will become an even stronger player in the entertainment market, having overtaken its main competitors.

Conclusion

Recently there has been a significant increase in number and volumes of mergers and acquisitions transactions in the whole world including Russia. Integration processes change structurally, high number of regions is involved in them, and scales of international transactions extend. For business community these processes have clear logic as they assume obvious economic motivation: expansion of sales markets, production synergy, financial benefits, which are factors conducting to increase in cost of equity and increase in influence of the company in the market in which it functions.

Though, not all the M&A deals are successful and bring benefits to the acquiring company, there is a number of deals that prove that if a company uses correct and rational evaluation of future transaction, namely valuation of the target company and future economic benefits, M&A deal can considerably improve the competitive position of the company as, for example, it was made by The Walt Disney Company.