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Comcast bids for Disney
No. 1 cable operator offers $54 billion for media company; Disney says it will evaluate the offer.
February 18, 2004: 3:00 PM EST
By Paul R. La Monica, CNN/Money senior writer

NEW YORK (CNN/Money) - Comcast Corp. made a surprise, unsolicited offer to buy Walt Disney Co. for $54 billion Wednesday, a deal that would create the world's biggest media company.

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Jack Myers, editor of the Jack Myers Report, comments on Comcast's bid for Disney and a potential regulatory conflict.

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Comcast, already the nation's biggest cable operator, would own the ABC broadcast network as well as the Disney film studio, ESPN, and other Disney assets if a deal gets done -- though that remains far from assured. It valued its offer at about $66 billion, including the assumption of debt.

"This is a combination that we believe would restore the Disney brand," Comcast CEO Brian Roberts said during a conference call. "There is no doubt that these two companies can achieve things together that they would not be able to do alone."

The proposed deal steps up the pressure on Disney Chairman Michael Eisner, who is facing a campaign by ex-directors Roy Disney and Stanley Gold to oust him, and who recently lost a lucrative film distribution partnership with Pixar.

Comcast said Eisner has been unwilling to discuss a merger, so it sent a letter to Disney's board making its offer public. Disney said in a statement that it "will carefully evaluate" the offer and Eisner reiterated this during a conference call with analysts Wednesday afternoon.

Disney (DIS: down $0.19 to $26.71, Research, Estimates) stock jumped 14.6 percent Wednesday and closed at $27.60, above the price Comcast offered, a sign investors believe the company is "in play" and the bidding could go higher. News Corp. CEO Rupert Murdoch said his company would not make a bid, Reuters reported.

Analysts offered mixed opinions about Comcast's odds, though most said it would probably have to increase its offer.

Comcast is offering 0.78 of a share of its Class A stock for each Disney share, valuing Disney shares at $26.47 apiece, or about $54.1 billion based on Tuesday's closing prices. Comcast would also assume about $12 billion in debt (for more on the proposal, click here).

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Shares of Comcast (CMCSA: Research, Estimates) sank nearly 8 percent Wednesday to $31.23. Based on Wednesday's prices, the deal values Disney at about $24.36 a share, or nearly $50 billion.

Matt Hemberger, an analyst with Arbitrage, a mutual fund that invests in takeover situations, said a fairer price is probably $30 to $32 a share. "Comcast will have to come back to the table, especially in light of Disney's earnings," he said.

Disney reported earnings of 33 cents a share, well above a year earlier and most Wall Street forecasts. Comcast, which also reported results Wednesday, posted a net profit of $383 million, reversing a year-earlier loss.

For Comcast, a successful merger would cap a stunning growth story.

Once a small regional cable company in Tupelo, Miss., Philadelphia-based Comcast has become the nation's largest cable firm through a string of acquisitions, most recently its $29 billion purchase of the cable assets of AT&T. (For a look at Comcast's Brian Roberts, click here).

Some analysts said integrating Disney would be Comcast's biggest challenge yet. "Comcast has a successful track record of acquisitions but that's solely on the cable side, not the content side," said Patricia Lee at CreditSights, a fixed income research firm.

In addition, the merger would be closely eyed by regulators. Federal Communications Commission Chairman Michael Powell said Wednesday the agency would give the proposed deal "ruthless and rigorous" scrutiny.

But David Joyce at Guzman & Co. said courts have overturned FCC rulings blocking companies from owning local networks and cable stations in the same market. "An FCC review shouldn't be a concern. There is no deal killer," he said.

Deal would create a media powerhouse

Roberts said during the conference call that he has yet to speak with Roy Disney, Gold or any other Disney shareholders, adding he hopes Disney's board "would do the right thing".

Gold said it was "much too early" to comment on whether he and Roy Disney favored a Comcast deal. But on a conference call, he called it a "serious offer," adding he hopes the Disney board "would begin to handle this with the best interest of shareholders, and not the best interest of Michael Eisner, in mind."

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Brian Roberts, CEO of Comcast, announces proposal to acquire Walt Disney Co. for $54 billion.

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Although Gold and Disney would not comment about the specifics of Comcast's offer, Gold gave a glowing endorsement of Stephen Burke, the Comcast Cable president who worked for Disney for 12 years before joining Comcast.

"Stephen Burke is a very able executive. When he left, the company began to fall on bad times," Gold said. "Steve is the kind of guy that Disney ought to be populating all its divisions with."

Disney and Gold blame Eisner for mismanaging Disney over the past decade, noting the recent breakdown in talks with Pixar to extend the deal that has brought Disney such hits as "Toy Story" and "Finding Nemo."

During Wednesday's Comcast call, Burke said Comcast's first goal would be to restore Disney to the level of profitability it had a few years ago.

More on Comcast and Disney
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Comcast's letter to Disney
Disney earnings soar
Commentary: Comcast bid too low
Eisner could seek other offers

"We are not talking about taking Disney to unseen heights," Burke said, adding Comcast could improve ABC's results and get better distribution deals for some of Disney's cable channels, such as ESPN, ABC Family and the Disney Channel.

But CreditSights' Lee said the biggest plus for Comcast would be control of ESPN. Several cable companies have been involved in tense talks about the rates ESPN wants to charge cable companies for its content. Cox Communications has been especially vocal on this topic.

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"This deal offers Comcast the ability to control sports programming costs and that's a major expense for cable guys," Lee said.

She added that Comcast has the financial flexibility to do a deal for Disney, and that it could sell assets to reduce its $27 billion debt load, if needed.

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But one fund manager said he was skeptical a merger would be a success.

Big media deals such as Vivendi-Universal and AOL-Time Warner have had their share of problems, said Alex Vallecillo, co-manager of the Armada Large Cap Value fund, which owns Comcast shares.

"On paper, marrying content with distribution makes a lot of sense but in reality it's been a tough nut to crack," said Vallecillo.

Analysts quoted in this story do not own shares of Disney or Comcast. Guzman & Co. has performed investment banking for Comcast.  Top of page


-- Staff writer Parija Bhatnagar contributed to this story




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