Comcast Makes $66B Bid for Disney

Byline: Fred Barbash and Christopher Stern

Comcast, the nation's largest cable company, announced this morning that it has made an unsolicited proposal to merge with The Walt Disney Co.

Brian. L. Roberts, Comcast's president and chief executive officer, said he was presenting the merger offer publicly to Disney shareholders because Disney Chief Executive Michael Eisner declined to enter into discussions on the subject.

The takeover attempt, if successful, would create one of the world's largest media conglomerates, along with Viacom, Time Warner and News Corp.

Disney owns its film studio, ABC television, the ESPN sports network and the Disney theme parks.

Comcast, which is headquartered in Philadelphia, has 21 million cable customers and 7 million Internet broadband customers, half of them acquired when it took over AT&T Broadband 15 months ago. Comcast said it valued Disney at $66 billion based on it's share price Tuesday, minus $11.9 billion of Disney debt, which Comcast said it would assume.

It offered Disney shareholders a stock swap of .78 shares of Comcast for each Disney share, a premium, it said, of about 10 percent. Disney shares closed at $24.08 on Tuesday on the New York Stock Exchange, near a year high of $25.08 touched last month. Comcast closed at $33.93 on Tuesday, also on the NYSE. The share price of both companies fluctuated signifcantly Wednesday after the announcement.

In a statement today from Disney's Board of Directors, the company said it "will carefully evaluate the unsolicited proposal from Comcast Corp. In the meantime, there is no action for shareholders to take."

Comcast's move represents an attempt, comparable to AOL's reason for merging with Time Warner, to reap profits not merely by distributing content but by owning it as well.

"I am confident that when we put those great brands and programming assets together with our distribution, there will be singificant opportunities to produe compelling returns for shareholders," said Steve Burke, a former Disney executive who is now president of Comcast.

While Comcast is majority owner of a number of content channels, including The Golf Channel and Outdoor Life Network, these are not major players in the entertainment business, especially compared with Disney's holdings.

The offer, which analysts suggested was timed to play on recent shareholder conflict at Disney and on weak stock performance since 1998, could set off a titanic battle for shareholder allegiance.

Disney stock is one of the most widely held in the world. Roughly 65 percent belongs to institutions, such as mutual funds.

Comcast would have to convince shareholders that they are getting the best possible share price, better than they can do in the long run by sticking with Eisner.

Comcast, Roberts said in a conference call this morning, can "return the Disney brand to prominence and the Disney company to growth."

Eisner and his allies would have to convince millions of Disney shareholders that they will be better off under the current management at a time when it is being criticized by many investors for allowing the company to stagnate.

There was no immediate comment from Disney, which has been shaken in recent months by conflict on its board.

Roy E. Disney, a nephew of company founder Walt Disney, resigned from the board of directors in December, repeating his call for Eisner to do the same.

Disney, 73, in a letter delivered to Eisner at the time, reiterated his past criticism of the chief executive's handling of the company, ranging from poor ratings at the ABC-TV network to Eisner's management style, which Disney considers too hands-on.

"This is a unique opportunity for all shareholders of Comcast and Disney to create a new leader of the entertainment and communications industry," said Roberts. "Not only would this merger create significant shareholder value, but it would also position the combined company to compete vigorously with other entertainment and communications companies, including newly created integrated distribution/content providers."

Wall Street analysts praised the concept of the merger, with Merrill Lynch issuing a report calling Comcast and Disney "perfect merger partners."

Roberts released a letter to Eisner dated Feb. 11. He said it was "unfortunate" that Eisner declined to talk. "Together, we would unite the country's premier cable provider with Disney's leading filmed entertainment, media networks and theme park properties.

"In addition to serving over 21 million cable subscribers, Comcast is also the country's largest high speed internet service provider with over 5 million subscribers. As you have expressed on several occasions, one of Disney's top priorities involves the aggressive pursuit of technological innovation that enhances how Disney's content is created and delivered.

"We believe this combination helps accelerate the realization of that goal -- whether through existing distribution channels and technologies such as video-on-demand and broadband video streaming or through emerging technologies still in development -- to the benefit of all our shareholders, customers and employees."

Disney reported a sharp rise in quarterly earnings today, releasing its results earlier than planned in the face of the Comcast takeover bid.

Net income was $688 million, or 33 cents per share, in the fiscal first quarter ended in December, compared with $36 million, or 2 cents per share, in the year-ago quarter.

Comcast also released quarterly numbers today, reporting a fourth-quarter profit that reversed a year-earlier loss. Comcast posted a net profit of $383 million, or 17 cents a share, compared with a year-earlier loss of $51 million, or 3 cents a share.

Revenue totaled $4.74 billion, matching Wall Street's targets. Cable revenue rose 8.6 percent to $4.51 billion.

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