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 Hollywood'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.