- The Washington Times - Wednesday, February 11, 2004

The nation’s largest cable-television company yesterday made an unsolicited $54 billion bid for the Walt Disney Co., the media and entertainment company that created Mickey Mouse and operates some of the world’s most famous theme parks.

Comcast Corp., the Philadelphia cable behemoth, submitted a formal offer to Disney’s board of directors after Disney Chief Executive Michael Eisner rejected an informal proposal earlier this week. Mr. Eisner said the company will consider the terms of the deal, which would create the world’s biggest media company.

“We did get an unsolicited offer, which the board of directors will take under advisement,” Mr. Eisner said at the beginning of a previously scheduled meeting with investors at Disney World.

Analysts said the proposed merger faces intense regulatory scrutiny but predicted that the deal would be approved.

Although Mr. Eisner was reticent, Comcast President and Chief Executive Brian Roberts was effusive yesterday. He said the proposed purchase would benefit Comcast by allowing it to beam programming from Disney’s entertainment and cable empire to its 21.5 million cable subscribers. Disney owns companies and networks that include ABC, Miramax Film Corp., Touchstone Pictures, ESPN, Biography, A&E; and the History Channel.

Mr. Roberts said Comcast’s most significant contribution to the proposed purchase would be its role in improving Disney, based in Burbank, Calif. He and Comcast Cable President Stephen Burke outlined a plan to improve Disney properties such as ABC, which he described as a weak fourth-place television network, its cable channels and theme parks.

Mr. Burke said Comcast could generate $800 million to $1.2 billion in new revenue by bolstering Disney’s brands and cutting costs.

“We think there’s a chance to reignite” Disney, Mr. Burke said.

He also indicated the combined company would develop new cable channels.

Mr. Eisner told investors that the entertainment company doesn’t need Comcast’s help.

“We’re on the road to recovery,” said Mr. Eisner, who has had an embattled tenure during his 20 years at Disney. Roy Disney, nephew of founder Walt Disney, stepped down from the board of directors at the end of last year and is leading an effort to oust Mr. Eisner.

Mr. Roberts said the combined company could offer Disney content on demand to the 5.3 million Comcast customers who subscribe to its high-speed cable service.

Mr. Roberts said he hopes discussions can be quick and amicable.

“This is an exciting possibility, and we want to see if it’s something Disney will accept. I have no idea what happens next. I think the ball is in Disney’s court,” he said.

Disney shareholders sued the company yesterday, asking a judge to order the company’s directors to consider all offers for the company. In nine separate lawsuits filed in Delaware Chancery Court, the shareholders said directors have a legal duty to get the best value for shareholders and should not reject Comcast’s offer.

Disney had mixed financial results in 2003. Annual revenue from its media networks increased 12 percent, or $1.2 billion, over 2002 results to $10.9 billion last year. Annual revenue from its parks and resorts fell last year by 1 percent, or $53 million, to $6.4 billion.

Disney started the year off badly when Pixar Animation Studios said two weeks ago it would end negotiations with the company on a new production and marketing agreement. The current contract expires next year.

Analysts said Disney is likely to reject Comcast’s initial offer. Tom Burnett, president of Merger Insight, a merger and acquisition research firm, said Disney will view the offer as inadequate.

“It’s just the first step in a long negotiating dance,” Mr. Burnett said.

Comcast’s offer values each Disney share at $26.47.

But Disney shares closed yesterday on the New York Stock Exchange at $27.60 a share, up 14.6 percent and at a 52-week high.

Comcast shares closed lower yesterday, falling nearly 8 percent to $31.23 a share on Nasdaq.

Under the terms of the deal, Comcast would issue 0.78 of a share of stock for each share of Disney stock, giving Disney stockholders 42 percent of the combined company. Comcast would assume Disney’s $11.9 billion in debt.

Despite any potential benefits the deal might offer, the transaction would receive close regulatory scrutiny because of the number of consumers affected and because of congressional concerns over media consolidation.

Sen. John McCain, Arizona Republican and chairman of the Senate Commerce, Science and Transportation Committee, said the proposed purchase would cause greater consolidation.

“How much is too much?” he asked.

News Corp. Chairman Rupert Murdoch told analysts during a conference call yesterday the merger could earn regulatory approval.

“There’s going to be a … row in Washington about media concentration this time, although I would think they will get it,” said Mr. Murdoch, the Fox Network owner whose News Corp. just won regulatory approval to buy DirecTV.

Federal Communications Commission Chairman Michael Powell said at a Senate hearing yesterday on indecent programming that the proposed deal would require a thorough examination by regulators.

“A merger of that magnitude will undoubtedly go through the finest filter at the commission as is possible,” he said.

Comcast has not shied away from big deals. In 2002, it bought AT&T; Corp.’s broadband business for $72 billion, the second-largest unsolicited bid in U.S. history.

Both Comcast and Disney released earnings yesterday.

Comcast reported 2003 net income of $3.2 billion on revenue of $18.3 billion.

Disney’s fiscal first-quarter net income rose to $688 million from $36 million a year earlier. Revenue rose 19 percent to $8.5 billion.

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