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Disney, Netflix, Twitter, others caught in deal rumors

M&A chatter continued to push media and communications stocks around for the trading week ended Oct. 7, with Netflix Inc., Walt Disney Co. and Twitter Inc. among those caught up in deal rumors.

With a market cap skimming just under $50 billion, Netflix is not often the object of acquisition speculation, but reports during the week suggested Disney was mulling a bid.

Disney has swelled to a market cap of almost $150 billion, 3x the size of Netflix, and recent chatter suggests the Mouse House may be hungry for new lines of business. The Netflix deal rumor followed other rumors that Disney was considering a bid for Twitter.

However, upon reflection, some analysts questioned how serious Disney might be. Barton Crockett of FBR & Co., for example, acknowledged the value in adding Netflix’s streaming entertainment platform to Disney’s children’s and sports strategy, but pointed to the companies’ existing partnerships and Netflix’s sporadic growth trajectory. "Contemplation of a potential pairing would make more sense to us in three years when Disney's pay TV deal with Netflix comes up for renewal, and Netflix's growth trajectory has normalized," the analyst said in an Oct. 5 note.

But despite the doubts, investors still salivated over a lucrative buyout and bid Netflix shares up 6.8% for the five trading days ended Oct. 7.

Twitter, on the other hand, had a less favorable fate during the week. At the end of September, reports circulated that Twitter was being courted by a handful of companies, including Alphabet Inc., Apple Inc., Salesforce.com and Disney. Twitter investors, who seem hungry for a strategic alternative after several initiatives failed to deliver meaningful user growth, felt a surge of optimism and bid Twitter’s stock up over 20%.

But during the week ended Oct. 7, those rumors soured. All of Twitter’s potential suitors except Salesforce pulled out of the consideration process, according to Oct. 5 reports. Twitter’s stock responded by erasing the gains it had originally made on the speculation. Shares of the microblogging site were down 16.7% for the week.

Theme park company SeaWorld Entertainment Inc. was in the investment news with some bullish commentary during the week.

First, a group of investors that included the co-founder of advisory firm Glass Lewis & Co. disclosed a 5.2% stake in SeaWorld, according to an SEC filing. The group said in the filing that it planned to engage in talks with SeaWorld and its representatives regarding the company's business. The statement could signal a push for SeaWorld to look at strategic alternatives for the company, but the investors did not specify their exact intentions.

Adding some fuel to speculation about SeaWorld's future, Crockett at FBR issued an Oct. 3 note on the company saying that its most recent lease payments in San Diego imply that the business there is normalizing after animal-rights scandals related to the documentary "Blackfish." Those lease terms are tied to the park’s revenue, and lease payment increased 2.5% in July and dipped by 0.8% in August, suggesting some stabilization after the payment plummeted 19.8% and 8.5% in 2014 and 2015, respectively.

All told, SeaWorld raised its market cap by 4.8% for the trading week.

Movie company Lions Gate Entertainment Corp. saw a pop during the week as it made a few headlines.

First, the company on Oct. 7 released a film targeted to children and teenagers, "Middle School: The Worst Years of My Life." Forecasts for the title go as high as $8 million for the opening weekend, which could lead to some strong profitability for the $11 million picture.

It also caught some M&A attention as SEC filings suggested it was ready to seek shareholder approval for its $4.4 billion merger with Starz, launching it into the premium TV space.

Adding to such expanding diversification, the company announced that it hired a new media executive to lead its digital streaming strategy. Julie Uhrman will be the executive vice president and general manager of Lions Gate's over-the-top ventures.

In all, investors cottoned to Lions Gate’s news and updates, bidding shares up 5.3% for the week.

While most indexes remained relatively flat through the week, the SNL Kagan Communications Index saw a decidedly downward swing as component companies AT&T Inc. and Verizon Communications Inc. weighed against it.

During the week, Google announced that its new Pixel smartphone would be available exclusively through Verizon and its own online store, but investors did not seem to pay that much attention. It was also reported that Verizon is close to a deal to sell $3.5 billion in data centers to Equinix Inc.

Meanwhile, AT&T announced plans to unroll Internet service in 11 new metro areas, said it struck a tentative deal with its unionized workers and, attracting the most headlines, said it entered a partnership with pop star Taylor Swift.

However investors digested the various headlines, the net effect seemed to be negative, with AT&T and Verizon trading down 4.2% and 3.7%, respectively, over the week.

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