Essential Entry Tests and Corporate Strategy to be adopted while diversifying through acquisition.

1. Section 1 Group 10
WALT DISNEY
THE ENTERTAINMENT KING

2. .
Walt Disney’s Acquisition of ABC
Essential Tests
Attractiveness Test
Cost Of Entry Test
The Better Off Test
Sharing Activities
Transferring Skills
Restructuring
Portfolio Management
Corporate Strategy
2

3. • ABC Included
• ABC Television Network
• ABC Radio Networks
• Cable Networks
• ESPN
• Newspapers
• Disney was the largest entertainment firm after acquisition
• Helpful for distribution/broadcast of Disney Films &
animation films
• Disney sought strategic fit than barriers to business
• Disney had hostile situations with cable operators and other
production houses when it was trying to run ABC
Essential Tests
Attractiveness Test
Cost Of Entry Test
The Better Off Test
Sharing Activities
Transferring Skills
Restructuring
Portfolio Management
Corporate Strategy
3

4. • Cost of Acquisition - $ 19 Billion
• 22 times the estimated earnings of ABC in 1995
• Debt Ratio increased from 20% to 34 %
• Exhibit 1
• ROA fell from 9% to 3% (Under Utilization of Assets)
• ROE fell from 23% to 11%
• Bearing the full cost has brought down profit potential
• Disney didn’t consult any Investment banker’s advise before
acquisition
Essential Tests
Attractiveness Test
Cost Of Entry Test
The Better Off Test
Sharing Activities
Transferring Skills
Restructuring
Portfolio Management
Corporate Strategy
4

5. • Significant Competitive Advantage: Own Distribution system
for production house
• Long Term Benefit
• ABC Business:
• Other Studios were reluctant to collaborate with ABC in
developing new TV productions
• Result: ABC business model got affected
• New Businesses:
• Acquired/Created – 18
• Divested – 4
• Expansion in size, New culture to be managed.
Essential Tests
Attractiveness Test
Cost Of Entry Test
The Better Off Test
Sharing Activities
Transferring Skills
Restructuring
Portfolio Management
Corporate Strategy
5

6. • Disney – ABC : Diversification through Acquisition
• Acquisition was not autonomous
• Disney interfered in ABC’s structure with its
micromanagement structure
• 1996 – 99 : ABC produced TV Show’s did not feature in top 3
most viewed television shows (US)
• As the size grows, maintaining growth becomes a challenge.
(Finding additional revenue streams)
Essential Tests
Attractiveness Test
Cost Of Entry Test
The Better Off Test
Sharing Activities
Transferring Skills
Restructuring
Portfolio Management
Corporate Strategy
6

7. • Basing strategy on restructuring business units important
• Restructuring helps in cost of entry test – finalizing the value
for the company to be acquired
• Disney didn’t have a plan before acquiring, hence managing
ABC was difficult
• Disney had to close/divest 4 businesses as they couldn’t handle
it.
• Disney couldn’t create shareholder value as it didn’t follow
restructuring ABC.
Essential Tests
Attractiveness Test
Cost Of Entry Test
The Better Off Test
Sharing Activities
Transferring Skills
Restructuring
Portfolio Management
Corporate Strategy
7

8. • “Insiders say Disney’s micro-management has left many at
ABC unhappy and anxious” - Wall Street Journal
• ABC began to operate like a movie studio
• Synergy: ABC was being transformed to Disney’s culture,
which affected the business as a whole
• In order to save $50 Million, Touchstone Television was
merged as a division into ABC
• This aggravated the culture difference
Essential Tests
Attractiveness Test
Cost Of Entry Test
The Better Off Test
Sharing Activities
Transferring Skills
Restructuring
Portfolio Management
Corporate Strategy
8

9. • Sharing of activities that give Competitive advantage
• 6 year NFL bid by ESPN for $ 9 billion - Clear advantage
• Shortcoming: Cost of Sports relay increased, Cost benefit
analysis forgotten
• Business units didn’t collaborate
• Interrelationships didn’t work; Lack of business level planning
for ABC
Essential Tests
Attractiveness Test
Cost Of Entry Test
The Better Off Test
Sharing Activities
Transferring Skills
Restructuring
Portfolio Management
Corporate Strategy
9

10. DISHANK WADHWA DM14216
MAHENDRAAVINASH DM14233
NIMISHA JAIN DM14239
SHILPA KEVLANI DM14247
SURYA MURALI DM14253
SWETHA SUBHAS CHANDRAN DM14255
VIJAY KRISHNAN A DM14257
THANK YOU