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Comcast proposes to buy Walt Disney
(Agencies)
Updated: 2004-02-12 09:11 Cable television giant Comcast Corp., the U.S.
biggest cable systems operator, made a surprise bid for The Walt Disney Co.
that would create the world's biggest media conglomerate and likely spell an end
to the 20-year career of Disney chief Michael Eisner.
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| Comcast Corp. Executive Vice President
David L. Cohen points to chief executive Brian Roberts, left, and Stephen
Burke, head of the company's cable division, after a news conference in
New York Feb. 11, 2004. [AP] | Comcast,
which said Eisner had rejected the idea of private talks, stunned the media
world with its announcement early Wednesday. It was made just before Disney
started two days of meetings with analysts at its flagship Walt Disney World
theme park and hours before Disney was set to announce strong first quarter
earnings.
The bid was initially valued at $54 billion, but investors bid up the price
of Disney stock beyond the Comcast offer — a signal that Comcast would have to
sweeten its bid to be successful.
Disney's board released a statement saying it would "carefully evaluate"
Comcast's offer. But the board cautioned shareholders not to take any action in
the meantime.
Comcast is moving at a time that Disney is struggling with internal strife
over corporate governance concerns and Eisner's plans for succession, as well as
lagging performance at key businesses such as ABC.
Disney shareholders will gather for their annual meeting March 3 in
Philadelphia, where, coincidentally, Comcast is based.
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| Merger of Comcast and Disney would create
an entertainment and communications giant.
[AP] | Comcast, the nation's biggest cable systems
operator, said it would also assume $11.9 billion in debt from Disney, which
also owns ESPN, movie studios and theme parks.
The proposal came as Eisner is fending off criticism from former board
members Roy E. Disney, the nephew of Disney founder Walt Disney, and Stanley E.
Gold about his performance and lack of a succession plan as Disney's chief
executive. That pressure increased late Wednesday, when Institutional
Shareholder Services, an influential shareholder group, recommended against
Eisner's re-election to the Disney board, citing "blurred" lines between the
board and management.
Comcast said Eisner declined earlier this week to discuss a possible merger.
"This is a very exciting moment," Comcast CEO Brian Roberts said in a
conference call with investors and analysts. Roberts said the combination "would
create one of the world's premier entertainment and communications companies,
and, we believe, restore the Disney brand to prominence and the company to
growth."
As if to answer the bid, Disney released its first quarter earnings hours
before originally planned.
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| Comcast Corp., the largest U.S. cable
television operator, launched a stunning proposal on February 11, 2004 to
buy Walt Disney Co. in a deal Comcast said would value Disney at $66
billion including debt. Visitors walk on Main Street towards the
Sleeping Beauty Castle at Disneyland in Anaheim, California in this
October 2001 file photo. [Reuters] | The earnings
easily beat analyst expectations and, Eisner said in a statement, showed the
company was firmly on a turnaround that would see 30 percent earnings growth
this year and double digit growth until at least 2007.
Eisner made a brief reference to the bid at the beginning of a conference
call to discuss the earnings, saying the board had asked Disney's management and
advisers to "to provide an in-depth analysis of the proposal to enable the board
to respond appropriately."
Analysts said the combination made sense, but questioned whether Comcast
would sweeten its offer sufficiently.
"Strategically, from Comcast's point of view, it would be a terrific move,"
said Janna Sampson, co-Manager of the AmSouth Select Equity Fund and director of
Portfolio Management at Oakbrook Investments. "I think it's probably not a good
deal for Disney shareholders at the price on the table today."
Analysts were not surprised that Comcast, which has access to cable
subscribers, would be interested in Disney, with its suite of top-rated cable
channels and visible brand.
But they were taken off guard by the timing. Disney's stock, which has lagged
over the past six years or so, has risen sharply over the past 12 months and
earnings have also climbed on the strength of Disney's film slate and a
turnaround at its theme parks.
But Eisner has been under heavy pressure as talks to extend Disney's
lucrative deal with Pixar Animation Studios collapsed and dissident shareholders
raised questions about the independence of Disney's board.
"It's going for the jugular," said Paul Kim, senior media analyst at
Tradition Asiel Securities. "He (Roberts) is using this vulnerable time to force
Disney's hand."
Kim also said Comcast is basically a cable company, and might be biting off
more than it can chew. "I think they underestimate the complexity of being a
broad-based media company," he said.
In a conference call Wednesday, Comcast's Steve Burke, the head of the
company's cable division and a former Disney executive, sounded many of the same
notes as dissident shareholders Roy Disney and Stanley Gold.
"We think restoring Disney animation to its rightful place is important,"
Burke said, echoing a major criticism levied by Roy Disney. "Our goal would be
to again place Disney animation in the center of the company."
Burke also criticized Disney's $5.3 billion purchase of Fox Family Worldwide,
a deal Eisner has admitted was a mistake at that price. The company has not
succeeded in boosting ratings or profits at its renamed ABC Family Channel.
"We believe it operates at around break even," Burke said. "We can help
address this underperformance."
In a news conference in New York, Roberts said he hoped to make the deal "as
friendly and amicable as possible, as fast as possible," but he also noted that
he was ready to abandon the proposed merger if need be. "We've walked away from
big things before. Life goes on," Roberts said.
Comcast also released a letter sent to Eisner indicating that Eisner had
personally rejected Roberts' offer to enter into discussions about a merger
earlier in the week.
The letter from Roberts called it "unfortunate" that Eisner was not willing
to enter into discussions. "Given this, the only way for us to proceed is to
make a public proposal directly to you and your board," the letter stated.
Under the merger, Comcast said it would issue 0.78 of a share of its Class A
stock for each Disney share, and Disney shareholders would retain 42 percent of
the combined company. The offer valued each Disney share at $26.49, a 10 percent
premium over their closing price Tuesday.
That's a relatively small premium for a takeover offer, but Comcast may be
counting on the fact that other potential suitors in the media industry would
surely face tougher regulatory scrutiny in Washington. Most of Comcast's
holdings are in cable TV systems, while Disney's are in broadcast, cable and
"content" businesses like movie studios.
In a sign that investors expect an extended fight, Disney's shares shot up
$3.52, or 15 percent to $27.60 in very heavy trading on the New York Stock
Exchange, above Comcast's current offer. Comcast's Class A shares tumbled $2.70,
or 8 percent, to $31.23 on the Nasdaq Stock Market.
Disney and Comcast together had $45 billion in revenues last year. If a deal
is reached to combine the companies, they would edge out Time Warner, which had
$39.6 billion in revenues last year, atop the heap of media and communications
companies.
Comcast merged with AT&T Broadband in November 2002, making it the
largest cable TV company in the country with 21 million subscribers.
Comcast has several holdings in media content, but has made no secret of its
ambitions to acquire more. It has majority stakes in Comcast-Spectacor, the
owner of the Philadelphia Flyers and 76ers; Comcast SportsNet, E! Entertainment
Television, the Style Network, Golf Channel, Outdoor Life Network and
G4.
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