Walt Disney Co. agreed to buy Marvel Entertainment Inc. for $4 billion in the year's biggest media deal, banking on Marvel's pantheon of superheroes to broaden its line-up of movie franchises that appeal to boys.
Disney adds Spider Man, Iron Man and Thor to its roster of classic characters like Mickey Mouse and Snow White, and will feature the super-heroes in movies before rolling out associated theme park rides, TV shows and merchandise.
But the deal comes at a tough time in the entertainment business, with advertisers avoiding spending on new campaigns and consumers cutting back on everything from DVDs to travel.
The deal is also expensive. It values Marvel at 37 times its estimated 2009 earnings, and offers shareholders a 29 per cent premium to Friday's closing price. Standard & Poor's reacted by placing Disney's credit rating on its negative watchlist, saying it may need to issue new debt even as earnings stagnate or fall in the recession.
But the risk of overpaying did not deter Disney from seeking out a deal to address an area of concern among investors: How can it better reach more young males.
"This helps give Disney more important exposure to the young male demographic that they have sort of lost some ground with in recent years," said David Joyce at Miller Tabak & Co.
Disney has long been a blockbuster brand with girls thanks to characters such as Hannah Montana, Cinderella and Snow White, but has struggled to achieve the same kind of success with boys.
Movies including Iron Man 2, the sequel to the smash hit about a billionaire playboy with a high-tech suit of armour due to hit theatres in 2010, or 2011's Spider-Man 4 and Avengers, should help resolve that issue.
Disney will also be able to use its marketing and entertainment clout - stretching from ABC to cable television to theme parks - to promote and build characters such as Thor in ways Marvel never could.
The deal to buy the 70-year-old studio - which began life as an arm of a pulp fiction publisher in 1930 before bankruptcy, then rose to prominence in the past few years following Spider-Man - is Disney's largest since the $7.6 billion purchase of Pixar in 2006, and it made waves.
But analysts raised questions about companies like Viacom Inc., Discovery Communications Inc. and Hasbro Inc. that have existing business partnerships with Marvel. Hasbro stands to lose its chance to acquire valuable content for a new TV venture with Discovery, given that Disney is likely to hoard Marvel content for itself.
Disney agreed to pay a total of $30 per share in cash plus about 0.745 Disney shares for each Marvel share owned. The deal was approved by the boards of both companies.
The deal is expected to gain approval from antitrust regulators, said Evan Stewart, an antitrust expert with law firm Zuckerman Spaeder LLP. The shares of Marvel, which was founded in 1939 and rolled out its first blockbuster character, Captain America, in 1941, shot up to a high of $49.29.
Disney approached Marvel a few months ago "to get to know them," Disney chief financial officer Tom Staggs told Reuters. The overture began with a meeting between Disney chief executive officer Robert Iger and Marvel CEO Ike Perlmutter and evolved into merger discussions over a series of meetings.
"We at Disney had admired them because of their position and asset base," Mr Staggs said. "With conversations over time we came to believe in the value of a combination."
Shares of Disney, which will acquire ownership of more than 5,000 Marvel characters, fell three per cent to $26.04. The deal is expected to close by the end of the year, but will not add to Disney earnings until fiscal 2012.