Butch

http://www.nytimes.com/2004/02/11/bu...OMCAST.html?hp

Largest U.S. Cable Operator Makes Bid for Walt Disney
By ANDREW ROSS SORKIN

Published: February 11, 2004


he Comcast Corporation, the largest cable television operator in the United States, made a $54.1 billion unsolicited takeover bid today for the Walt Disney Company, the storied family entertainment colossus.

If successful, Comcast's bid would once again reshape the entertainment landscape, creating a new media behemoth that would combine the power of Comcast's powerful distribution channels to some 21 million subscribers in the nation with Disney's vast library of content and production assets. Those include its ABC television network, ESPN and other cable networks, and the Disney and Miramax movie studios.

The deal would also create a new rival to Time Warner and Rupert Murdoch's News Corporation, which own both content and distribution channels.

However, it remains unclear whether Comcast's offer will succeed. It values Disney's shares at only a 9 percent premium over their closing price of $24.08 on Tuesday. Some analysts suggest Comcast will have to raise its offer significantly for such a trophy company if it is going to win over Disney's board and investors.

The deal could also face regulatory hurdles.

In early trading, Comcast dropped $3.39, or 10 percent, to $30.54 on the Nasdaq. Disney jumped $3.21, or 13 percent, to $27.29 on the New York Stock Exchange.

The surprise unsolicited offer comes amid turmoil within Disney's board and unrest among some investors who have called for the resignation of the company's longtime chief executive, Michael D. Eisner. Roy Disney, a former Disney director and a nephew of Walt Disney, the company's co-founder, has been leading a lobbying effort to have Mr. Eisner ousted.

Disney executives could not be reached for comment this morning.

Comcast's chief executive, Brian Roberts, sent a letter to Disney's board today outlining his proposal after Mr. Eisner apparently rejected his overtures to enter merger negotiations last week. Calling Mr. Eisner's refusal to enter talks "unfortunate," Mr. Roberts said, "Given this, the only way for us to proceed is to make a public proposal directly to you and your board."

Mr. Roberts's hostile approach to Disney closely mirrors his successful effort to acquire AT&T's cable operations in 2001. At that time, he similarly made an unsolicited offer to AT&T after being refused a chance to negotiate. AT&T was under intense pressure from investors to increase its lagging stock price and Mr. Roberts's offer pushed AT&T's board to put the cable operations up for sale, which Comcast eventually won.

In Mr. Roberts's letter to Mr. Eisner and Disney's board, he wrote, "We have a wonderful opportunity to create a company that combines distribution and content in a way that is far stronger and more valuable than either Disney or Comcast can be standing alone."

Mr. Eisner may be in a vulnerable position. After appearing to have temporarily consolidated his power in beating back the board revolt led by Roy Disney, Mr. Eisner stumbled again earlier this month when Pixar ended the companies' partnership after 13 years and hits like "Finding Nemo" and "Toy Story."

Pixar's chief executive, Steven. P. Jobs, is said to have abandoned a new deal with Disney, in part, because he could not get along Mr. Eisner.

Shares of Comcast rose 62 cents to $32.94 on Tuesday. Under the terms of the proposal, Comcast would issue 0.78 of a share of Comcast Class A common stock for each Disney share. Comcast also would assume $11.9 billion of Disney's debt.

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ray

It's actually a $66 billion bid for Disney. I'll post again in a day or two after I've had a chance to look things over.

First thought though, I have no clue why Comcast would want to buy out Disney. Disney may be undervalued (for now), but I think they're going to need a huge turnaround especially in the Television and Movie businesses. It seems their theme parks are doing well compared to competitors.

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LegendKiller

Content + Distrib combinations have been shown to not create the synergies that are readily "apparent". Not to mention that almost 3/4 of mergers ever fail to do anything for companies. I think that while Disney DOES have a vast media library, Comcast would be getting in WAY over it's head when considering the rest of the company, 4+ amusement parks, cruise line, merchandising, et al.

However, this could be the one thing that actually saves Disney. They have performed horribly as a company over the past 10+ years, their stock has lagged the major markets, their NI hasn't increased like their peers. I talked to more than a few finance people who came out of Orlando looking for jobs in Miami, most say that Eisner and his ilk have shattered the company's culture and have created a mass exodus of managerial talent.

Perhaps if Comcast takes over they can finally get rid of that fool, he is more concentrated on keeping his fief than creating a long-lasting company.


LK



I did an analysis for a journal article. While Disney was once considered a marquee company, their leadership is poor, their financials are weak, and their share price has lagged.

What good movies have they released? Last one I can think of was something like Lion King. Everything else has flopped, and flopped horribly. Their whole "Buy Cinderella now before it goes back into the vault" scheme is pure BS and cuts off more sales than it causes.

I think it comes down to management, they have lost touch with their customer base, more specifically, Eisner only cares about himself...look at his succession plan (lol).

My analysis looked at several features of great companies, including succession, customer connectedness, values, financial strength and several other values. Disney has lacked what its peers have had for a long time.


LK

ray

LK-

Just curious as to how you prepared an analysis of Disney with its peers when the only other company that has the same core businesses as Disney is the newly created GE/Universal Entertainment (my employer)? I consider Disney's core businesses to be:

Animation
Movies
Music
Television
Broadcasting
Parks

Just wondering who you compared Disney to. 6 months ago, there was no other media company with similar core businesses. Viacom would come the closest, but they lack Animation, Music and Parks. I don't think anybody else did/does, but I could be wrong.

And yes, I think Eisner screwed up Disney.

ray

I find this article interesting:

http://biz.yahoo.com/djus/040211/1424001101_2.html

My only question to these so-called Consumer Groups. Why haven't you complained that GE/NBC will now control the networks below once their takeover of Vivendi Universal Entertainment is complete?

NBC
USA
Sci-Fi
Trio
and a handful of networks worldwide

LegendKiller

The analysis was performed using historical performance data and the company subset was based upon Collins and Porras' "Built to Last". While Disney's comparison company, Universal, is now owned by Disney, I said that their performance wasn't up to peers when compared to the vast majority of the other high performing companies.

While there isn't a company as unique as Disney, the 25% 10 year return that disney has given it's investors (stock+div's), and the marginally larger ret earnings, have shown that the company is far from a major performer. Furthermore, Disney lacks any of the major traits that have been evidenced in most other strong companies, such as a very good plan of succession, the vision to see past the current decade to focus on the larger scale future, the ability to connect with it's consumers, and the ability to retain top-flight talent.

Often times, when you do a comparison such as this, you cannot find a totally accurate comparison company, thus it has to be compared to companies that are either similar, or a larger basket of like-oriented companies.

For example, WD-40 derives most of its income from lubricants, but is also diversified into consumer household goods. When my group picked this company for our financial statement analysis class we had no idea what we were getting in to. WD-40 has no major competitors in the lubricant field, where it derives 60% of revenue. The closest was a pure petrolium company, which you cannot compare to a diversified consumer goods. SC Johnson was closer but not totally accurate. Overall we went with an aggregate industry of consumer and petrolium based companies, which our proff liked a lot.

Disney has been crap compared to just entertainment companies and has acted the same when compared to other amusement park companies.


LK

johnnymk

By FLOYD NORRIS NY Times

Published: February 12, 2004


It would be the largest media company in America, created after a highly valued company with little involvement in media content sought to buy a media company that was larger, but not nearly as loved by Wall Street.

That is one way to look at Comcast's offer to buy Disney in an all-stock transaction.

The combined company, with almost $47 billion in annual revenue, would surpass Time Warner Inc. as the No. 1 media conglomerate. Time Warner's revenue last year was $39.6 billion.

Time Warner grew so large because of its own merger, in which it was taken over by America Online in 2001. That deal gave AOL subscribers the majority of the company even though their business contributed a minority of the revenues.

That deal, of course, went down as one of the worst mergers in history. AOL's stock had been inflated by the Internet bubble, and after the bubble's collapse the share price of the combined AOL Time Warner plunged. Anger over the deal was so intense within the company that AOL executives were eventually driven out of the top jobs and AOL was removed from the company name.

Comcast is not AOL. But it does have a following on Wall Street. Its shares, after suffering in the bear market, rose sharply last year, as did Disney's. But over a longer period, Comcast has done much better. Before yesterday, when news of the offer sent Comcast shares down and Disney shares up, Comcast Class A shares were trading at more than twice the price they fetched at the end of 1997, while Disney shares were down 27 percent over that same period.

Both companies reported financial results yesterday, Comcast showed $18.3 billion in annual revenue, while Disney's revenue in calendar 2003 was $28.4 billion, more than 50 percent higher than Comcast's.

But while Disney does a lot more business, Wall Street values it a lot less. Its total market capitalization when the offer was announced was $48.5 billion, or less than twice annual revenue. By contrast, Comcast was valued at $77 billion, or more than four times revenue. That makes it possible for Comcast to consider taking over the bigger company while leaving its shareholders with a majority stake in a merged enterprise.

Even better from Comcast's point of view, Disney is a less leveraged company. Comcast's bond rating might rise if it pulls off this deal as an all-stock transaction, as it wants to do.

One reason Comcast is viewed as attractive these days is its rapidly growing high-speed Internet business, which has been prospering as dial-up lines - the business that AOL dominated - have begun to lose market share. High-speed Internet supplied $2.3 billion of revenue for Comcast in 2003, up 52 percent from 2002.

By contrast, content - the stuff that media customers actually see - is a very small part of Comcast now. It offers cable channels like the E! Entertainment and Style networks and the Golf Channel, but total revenue from that segment came to just $885 million.

Disney is a content giant, with its movie studios as well as ABC Television and ESPN. A few years ago, Wall Street leaned toward the view that content would be king in the new media world, and Disney was a very hot stock.

But lately investors have been inclined to think that the winners may be the ones that can get at customer dollars first.

Many investors hope that cable companies will be able to win not only the Internet wars but also capture a growing share of telephone business. By that theory, those who provide content will have to take what the cable companies are willing to pay for their product.

Whether or not that forecast works out in the end, it has affected valuations now. And that gives Comcast a valuable currency in its stock as it seeks to pull off a David vs. Goliath takeover.

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gwilks98

I'm confused. Disney released Pirates of the Carribean which did very well. Disney also used to own Pixar, which was extremely successfull since it's outset. Do you mean Disney- done animation films?

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ray

Disney's productions and distributions the past year or so:

Lilo & Stitch
Lion King Special Edition
Santa Clause 2
Freaky Friday
Pirates of the Carribean
Miracle
Spy Kids
Spy Kids 2

Disney never owned Pixar. Disney was Pixar's sole distributor. Thus, if Pixar made a movie, Disney would sell the film domestically and internationally and keep a portion of the profits.

gwilks98

Thanks Ray.


But still, I think quite a few of their productions have still done very well, like Lilo and Stitch and Spy Kids 2 (which I hate to say). It's not that I don't believe him, I just don't think we're on the same page: I still want to know what LK meant by not doing very well.

wxtwiztidxc

So whos stock should i be buying?

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