Comcast lays siege to Magic Kingdom

[Terk-1]

CNBC Market Dispatches 2/11/2004 2:50:54 PM

Comcast lays siege to Magic Kingdom

The top U.S. cable company makes a $54B hostile bid for media giant Disney. With debt, the deal totals $66B. Disney's stock soars, but will embattled chief Michael Eisner make a stand?

Cable behemoth Comcast (CMCSK, news, msgs) stormed the Magic Kingdom this morning, surprising Wall Street with a $54 billion all-stock hostile bid for Walt Disney (DIS, news, msgs).

Including the assumption of $11.9 billion in Disney debt, the price tag rises to $66 billion.

Comcast CEO Brian Roberts said on CNBC that the move "seems like the logical next step for our business." Given its 30-year experience in distribution and Disney's long history with content, he added, "put these companies together (and) what a marvelous company we would have . . . it seemed like a natural fit."

Comcast initially said Disney CEO Michael Eisner refused to enter into discussions; this morning Disney's board said it would "carefully evaluate" the offer, Reuters reported. "In the meantime, there is no action for shareholders to take" on the offer, said Disney, which begins a two-day conference with investors on Wednesday.

Comcast said it would exchange 0.78 share of its stock for each share of Disney, a nearly 10% premium on Disney’s close on Tuesday. But Disney's shares jumped 15% this morning and Comcast shares dropped nearly 9%, revealing at least some unease about the combination and reducing that premium.

Disney's stock was the strongest of the Dow components as the big index surged more than 120 points. (Read more about the market in today's main Market Dispatch.)

The deal would bring Disney’s movie studios, ABC television, ESPN cable network and theme parks together with Comcast’s 21 million cable subscriber base, the biggest in the United States, Reuters reported.

Roberts stressed that Comcast is no stranger to content, having created several cable channels that are now valuable franchises. He said he believed Comcast and Disney together could create additional cable channels that would prove very profitable.

In addition, Comcast’s test of video-on-demand technology suggests there is plenty of consumer demand for new products. In a test of video-on-demand in Philadelphia, he said, half of the system’s customers used it, downloading an average 13 programs in a month.

A combined Comcast/Disney would compete against the top media and distribution companies like Time Warner (TWX, news, msgs) and News Corp. (NWS, news, msgs).

Is Comcast dreaming or is Disney done for?
Comcast’s executives were considering a bid for Disney as long as four years ago, CNBC’s David Faber reported, but many thought their interest in media giant was diminishing. The premium is “kind of pathetic,” Faber said, and “it would be stunning if (Comcast) were successful, but the fight is on.”

But CastleArk Management president Jerry Castellini told CNBC’s “Squawk Box” that Disney’s fate is already sealed. “Comcast can generate more revenues and more cash flow from Disney’s assets than Disney can," Castellini said. “And if (Comcast) can walk in and cut out the parts (it doesn’t) want, that’s pretty powerful.”

“I don’t see how Disney can defend itself,” he said.

Comcast will need to raise its offer, Tom Wolzien, analyst at Sanford Bernstein, told “Squawk Box.” But Eisner has a responsibility to take the offer to the shareholders now, Wolzien said.

CEO Roberts, on CNBC, hinted that given the morning's stock action, the price of the deal might change. "We just have to stay focused and say this is a great combination," he said.

Comcast is accustomed to hunting big game. About 15 months ago, Comcast acquired AT&T Broadband, which was twice its size at the time.

Comcast also announced fourth-quarter earnings today, reversing a loss from the same quarter a year ago, helped by high-speed data subscribers. Disney was scheduled to release its first-quarter earnings after the bell today, but then moved its announcement up and reported a profit of 33 cents per share, 10 cents better than Street expectations.

Another problem for the House of Mouse
Even before this unwelcome bid, Disney's critics were treating the Magic Kingdom like a dirty little rat instead of a cute little mouse.

Just a couple of weeks back, Pixar Animation Studios (PIXR, news, msgs) said it would pack up Nemo, Woody, Buzz Lightyear and its other characters and hit the road as soon as its five-movie deal with Disney expires.

"After ten months of trying to strike a deal with Disney, we're moving on," Pixar CEO Steve Jobs said in a press release. Jobs' stormy relationship with Disney chief Eisner got a large part of the blame for what most analysts saw as a big loss for Disney.

Comcast said today that rebuilding Disney's animation unit is a key goal -- and that might include trying to heal its spat with Pixar.

Eisner has also been under fire from two former directors -- Roy Disney, the last of the famed family to leave the company, and ally Stanley Gold -- trying to organize a shareholder rebellion. They've been urging that Eisner resign or face a coup.

The critics didn't endorse the takeover today, but Gold told Reuters that the offer confirms their criticisms. "We could not have asked a greater validation than the presentation Comcast gave this morning," former Gold said on a conference call. "What I would say is their presentation is a validation of the kinds of things we've been saying."

One key complaint: stock performance. Despite gains over the past year, Disney shares -- which peaked above $40 on a split-adjusted basis in 1998 and again in 2000 -- trade below $25 today.

Knox Fuqua, a fund manager at the $20 million AAM Equity Fund in Charleston, West Virginia, told the news service Disney needs serious change. "As a shareholder, I have been pretty pleased with my Disney holding," Fuqua said. "But as a shareholder I am concerned about what the future is for Disney, and whether it is an internal solution or another company steps in. . . . It is time for (Eisner) to admit that there needs to be a change."

 

[Terk-1]

Does this mean they'll change the name to Com World?

I have to admit that at first I was happy when Comcast bought AT&T cable and added a few new channels to our cable. But I was not expecting our regular cable to jump up by $5 per month. I was also not expecting my HBO to jump from $15 to $20 a month either (just HBO, not HBO family, etc.). The day I got the bill and saw the increases, I called and immediately cancelled the HBO. I also heard that the regular cable is supposed to go up again. This is making DirectTV look better & better.

 

[MagicPrincess]

OK, so lets say that this happens.
What do you think might be different about Disneyworld?
Would they really change anything?
Would prices go up even more???
How will this effect travel? Good or bad for Disney?
Inquiring minds want to know!!!

 

[Terk-1]

OK, so lets say that this happens.
What do you think might be different about Disneyworld?
Would they really change anything?
Would prices go up even more???
How will this effect travel? Good or bad for Disney?
Inquiring minds want to know!!!

My concerns regarding the parks & resorts is that the "Disney" way of doing things would give way to the "Comcast" way of doing things. I understand that Comcast is good regarding cable and television, but what experience do they have regarding theme parks & resorts? If bought, would they turn around and sell off these things to Universal or Busch? If my cable bill jumped in less than a year from their purchase and there is talk about raising it again, it would not surprise me that they would raise ticket prices.

 

[EsmeraldaX]

Originally posted by Terk-1
My concerns regarding the parks & resorts is that the "Disney" way of doing things would give way to the "Comcast" way of doing things. I understand that Comcast is good regarding cable and television, but what experience do they have regarding theme parks & resorts? If bought, would they turn around and sell off these things to Universal or Busch? If my cable bill jumped in less than a year from their purchase and there is talk about raising it again, it would not surprise me that they would raise ticket prices.

They are not good regarding anything. They are the only providers of digital cable in my town and theya re just awful.

 

[twardw]

For sure the "Disney" way of doing things would be lost.

The Disney Co. is big already.....becoming a part of something bigger is usually bad anyway. But the change in management style will negatively impact the parks. They will say over and over that it won't, but it happens every time.

Too bad.......I hope it doesn't happen.