Comcast bids $66 billion for Disney empire

Takeover would create largest media company

Offer considered just first step

Entertainment ownership from concept to delivery

February 12, 2004|By Robert Little | Robert Little,SUN STAFF

A surprising and unsolicited offer yesterday by cable television giant Comcast Corp. to take over Walt Disney Co. could create the largest and most pervasive media conglomerate in the world.

Analysts said the $66 billion deal could make another unusual addition to the merger-crazed industry of entertainment and communications: good business sense.

The marriage of America's largest cable television provider with the storied production studios of Disney, while hardly unique in its attempt to merge the creation and delivery of television content, would be the biggest leap yet toward a future that some industry observers consider inevitable - complete "vertical integration" of American entertainment.

Comcast hopes to use Disney's vast programming menu, which includes ABC, ESPN and several movie production units, as the foundation for an interactive cable service that could pipe movies, news and entertainment programming into households on demand, allowing Comcast to control - and profit from - the experience from beginning to end.

Recent history is filled with warnings about the pitfalls of merging companies from opposite ends of the media food chain, such as the troubled unions that created AOL Time Warner Inc. and Vivendi Universal, but Comcast executives say that technology and the industry have matured enough to allow such a merger to work.

Industry observers say they might be right - in theory, if not in multibillion-dollar reality.

"It's a combination that would make sense," said David C. Joyce, an analyst for Guzman & Co. in Miami who follows both companies. "Disney's investors have been asking for a long time when the company would buy the pipes into people's homes to deliver their entertainment programming and content, but they were always told the timing wasn't right. For the right price, this would be the right time."

Far from certain

A Comcast/Disney merger is far from a certainty and faces an array of corporate and regulatory obstacles, foremost among them being Disney's own executives and shareholders.

Comcast's $66 billion takeover offer - a stock swap initially valued at $54 billion, plus the assumption of about $11.9 billion in debt - was made despite the objections of embattled Disney CEO Michael Eisner, who personally rejected an overture from Comcast earlier this week.

By going over Eisner's head and delivering an offer directly to Disney's board of directors yesterday, Comcast initiated a takeover bid that could turn hostile.

The offer seemed timed to exploit a perceived weakness inside Disney's boardroom, where Eisner is battling with some of his own shareholders - including Roy Disney, a former director and nephew of company founder Walt Disney - who accuse him of mismanagement and are seeking his ouster.

Disney officials issued a statement yesterday promising to "carefully evaluate" the Comcast proposal, but they offered no time frame or any hint of the board's reaction.

And if Comcast is serious about a merger, analysts say, its offering price will likely have to rise. The initial offer of 0.78 of a share of Comcast stock for each share of Disney placed a value of roughly $26.47 on Disney's shares, a premium of less than 10 percent over the stock's opening price of $24.08.

Disney shares up

After the takeover bid was announced, traders on the New York Stock Exchange ran Disney shares up to a closing price of $27.60, suggesting that shareholders are expecting an improved offer.

Comcast stock, traded on the Nasdaq market, fell 8 percent yesterday to close at $31.23.

"I'm amused by the market's reaction," said Tom Burnett, head of research for Wall Street Access and its publication Merger Insight.

"It's telling us that the board is going to reject the offer and ask for a lot more - maybe a lot more than Comcast can finance. We're very early in the game on this."

News Corp. Chairman Rupert Murdoch was quoted yesterday by the British newspaper The Guardian saying that a Comcast/Disney merger would simply create a "third player" among television media giants, alongside his company and Time Warner Inc.

"I don't think it changes much," he said.

Comcast executives seemed to disagree. At a news conference yesterday, they unveiled a vision for the combined company that could ultimately change the way American households receive and pay for television programming.

Economies of size

Stephen Burke, president of Comcast Cable and a 12-year executive at Disney before he joined the Philadelphia-based cable conglomerate, said the combined companies could save $300 million to $400 million a year simply by eliminating redundancies and taking advantage of combined purchasing and bargaining power.

He also detailed Comcast's plan to revitalize Disney's fabled animation studios, combine and expand the two companies' cable television networks, spawn new networks and cross-promote them, and expand Comcast's customer base, which already exceeds 21 million cable subscribers and 5 million high-speed Internet subscribers.

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