Comcast Proposes To Disney

In a stunning move, cable TV giant Comcast Corp. proposed early Wednesday to buy Walt Disney Co., the iconic entertainment powerhouse, for stock valued at about $54 billion. It said Disney chief Michael Eisner had rebuffed its request for talks.

The nation's biggest cable systems operator said it would also assume $11.9 billion in Disney debt.

Comcast's proposal was made even as Eisner is fending off criticism from former board members Roy E. Disney, the nephew of founder Walt Disney, and Stanley E. Gold about his performance and lack of a succession plan as Disney's chief executive.

Comcast said Eisner declined earlier this week to discuss a possible merger.

"This is a very exciting moment," Comcast chief executive 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."

Noting that the offer for Disney had already been rejected by Eisner, an analyst asked Roberts what would come next. "The ball's in Disney's court," Roberts replied.

Calls to Disney representatives were not immediately returned early Wednesday. Michael Citrick, spokesman for Disney and Gold, said they had no immediate comment.

Angela Kohler, global media analyst with Federated Investors in Pittsburgh doesn't expect a third party to enter the fray and challenge Comcast as it tries to buy Disney. "But we've learned to expect originality in media deals," she said.

Comcast's unsolicited offer could spark additional deals in the media and entertainment segment, she told CBS MarketWatch.

"MGM suddenly becomes more valuable," Kohler suggested, referring to the Hollywood movie and television studio. Metro-Goldwyn-Mayer's shares rose on the news

"Comcast smells blood in the water at Disney," said James McGlynn, manager of the Summit Fund, which has been a Disney shareholder.

"Eisner is under siege by shareholders," McGlynn told CBS MarketWatch, citing what he called the "Pixar mishap" — allowing Pixar Animation Studios to break off contract talks. Pixar has produced hits for Disney, such as "Toy Story" and "Finding Nemo," while Disney's own animation studios have not had much success lately.

"It's going for the jugular," Paul Kim, senior media analyst at Tradition Asiel Securities, said. "[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.

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.

On Comcast's conference call, Steve Burke, the head of the company's cable division, told investors that Comcast believed it could greatly improve the performance of several of Disney's key businesses, including ABC, the ABC Family channel, animation and theme parks.

"We think job one is restoring the company to its previous levels of profitability," said Burke, who had previously worked at Disney for 12 years.

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 deal values each Disney share at $26.49, a 10 percent premium over their closing price Tuesday.

Philadelphia-based Comcast merged with AT&T Broadband in November 2002, making it the largest cable TV company in the country with 21 million subscribers. The company noted that merger in its sales pitch Wednesday.

"Our management team has a proven track record of successful integration of our merger partners," Roberts said.

Peter Cardillo, chief market analyst at S.W. Bach, told CBS MarketWatch it was "debatable" whether the Comcast bid would succeed, but the bid shows "confidence is building in Corporate America. The acquisition trail is heating up."

Comcast Corp. also reported Wednesday that it swung to a profit of $383 million, or 17 cents per share, for the quarter ending Dec. 31 thanks to continued strong demand for its digital cable and high-speed Internet services. Revenues jumped 58 percent to $4.74 billion.

Last year, Roy Disney, the last Disney family member active in the company that his father and uncle founded in the 1920s, and Gold had called on Eisner to resign, saying he was to blame for a tumbling stock price, embarrassing management missteps and a focus on short-term profits over the company's core mission.

But others credit Eisner with turning a sleepy theme park company and also-ran movie studio into a major media conglomerate.

Comcast has extensive holdings in media content providers, with 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.