Cable giant bids for Walt Disney

Cable operator Comcast Corp has launched a bid to buy Walt Disney Co for about $54 billion in a deal that would create the world's largest media company.

    Mickey Mouse is Disney's most famous animated character

    Comcast said it made the unsolicited all-stock offer on Wednesday which

    also included assuming $11.9 billion in debt, after being earlier 

    rebuffed by Disney Chief Executive Michael Eisner.

    The offer

    puts new pressure on Eisner, who is under fire from Disney

    founding-family shareholders bent on ousting him.

    The Disney board said it would "carefully evaluate" the

    offer, which would create a rival to Time Warner and News Corp.

    The deal would join Holly

    wood's top film studio, broadcaster ABC,

    sports juggernaut ESPN, worldwide theme parks and animated

    characters from Mickey Mouse to the Lion King with the top

    cable operator.

    Comcast's offer originally offered a 10% premium

    over Disney's closing share price on Tuesday, but the premium

    evaporated as shares of Disney rose as much as 16% and

    Comcast shares fell 9%, dragging down the value of the

    deal.

    Comcast's offer, which would exchange 0.78 of a Comcast

    class A share for each Disney share, originally valued Disney

    at $26.47 a share.

    Earnings leap

    Disney also reported a leap in quarterly earnings, the

    latest evidence of a return to solid growth from a deep slump

    in 2001.

    And its shares rose as high as $27.95, their highest

    level since July 2001, as investors bet the Comcast offer would

    be raised or topped by a rival.

    "I think Disney is worth a lot more money," said fund

    manager Knox Fuqua of AAM Equity Fund, which owns Disney

    stock.

    Comcast Chief Executive Brian Roberts, 44, one of the media

    industry's savviest dealmakers, sent Eisner an open letter

    saying it was "unfortunate" the Disney chairman and chief

    executive had rejected friendly merger talks.

    "We are on the

    road to recovery. We're doing well. All of our parks, our

    movies, our media networks are doing extremely well"

    Michael Eisner,
    Disney chief executive

    "Given this, the only way for us to proceed is to make a

    public proposal directly to you and your board," Roberts said.

    Merrill Lynch analyst Jessica Reif Cohen called the

    proposed merger a "perfect, brilliant combination," noting

    Comcast's ability to squeeze value from previous mergers.

    But

    she cut her rating on Comcast to "neutral" from "buy", saying

    its shares would be under pressure.

    Eisner under attack

    Federal Communications Commission Chairman Michael Powell

    said the proposed deal would get "ruthless and rigorous

    scrutiny".

    Roberts, however, said the companies were not

    competitors and predicted a merger could be completed in a year

    or less.

    The Comcast bid comes as Roy Disney, the nephew of company

    founder Walt Disney and a former board member, ramps up his bid

    to unseat Eisner.

    He accuses Eisner of mismanaging the company

    over the last decade and draining Disney's creative strength.

    Roy Disney declined to comment on the Comcast offer, which

    was made independently of his anti-Eisner campaign.

    But he

    offered shareholders on Wednesday a list of pointed questions

    about Disney's performance as analysts and investors gathered

    in Florida for a meeting focusing on earnings and strategy.

    On Wednesday, Disnet reported earnings for its fiscal first

    quarter (which ended in December) rose to $688 million, or 33 cents a

    share, from $36 million or 2 cents a share a year earlier.

    Disney 'recovery'

    This 

    topped the Wall Street consensus of 23 cents a share

    according to Reuters Research, a unit of Reuters Group Plc.

    Eisner said in Florida the company was

    considering Comcast's bid, but did not elaborate.

    "We are on the

    road to recovery. We're doing well. All of our parks, our

    movies, our media networks are doing extremely well," he said.

    Roy Disney has been lobbying institutional shareholders to

    vote against the re-election of Eisner and three other directors

    at the upcoming shareholders meeting on 3 March.

    "Disney has a wounded management that has lost lots of

    credibility already"

    Steven Cohen,
    Kellner DiLeo Cohen & Co.

    Disney has fought back with a public campaign of its own,

    and forecast growth in earnings per share of more than 30%

    this fiscal year.

    Roy Disney has been seen as a longshot to unseat Eisner,

    but his campaign may have made investors more open to Comcast,

    analysts said.

    'Wounded management'

    "Disney has a wounded management that has lost lots of

    credibility already," said Steven Cohen, chief investment

    officer of New York-based hedge fund Kellner DiLeo Cohen & Co

    .

    Disney recently suffered another blow when it failed to

    renew a lucrative movie distribution deal with Pixar Animation

    Studios Inc PIXR O, creator of "Finding Nemo", and

    other hit films that have generated $2.5 billion at the box

    office since 1995.

     

    Together, Disney and Comcast would have had 2003 revenues

    of $46 billion, topping the $40 billion of Time Warner.

    "You'll have three very big competitive companies in

    Comcast, News and Time Warner," News Corp chief Rupert Murdoch

    said, adding his conglomerate had no

    interest in making a run at Disney.

    Shares of Disney rose $3.46 to $27.54 in afternoon trade on

    the New York Stock Exchange. Shares of Comcast fell $2.42, or

    7.1% to $31.51.

    SOURCE: Reuters


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