Comcast bids for Disney

Brian L. Roberts and his Comcast Corp. set a mousetrap yesterday.

In a proposed merger of the nation's largest cable company and one of the greatest producers of animated stories, television shows, and movies, Comcast made an unsolicited $66 billion bid yesterday for the Walt Disney Co.

The deal would create the world's biggest media company and give Comcast control over Disney's movies and cable programming, including popular channels such as ESPN, which it could sell to competitors, creating a potential antitrust issue.

The bid was rejected quickly by Disney, the famous but financially troubled media empire. But the offer is likely to set off months of corporate maneuvering as Disney tries to defend itself against Comcast overtures.

The whopping price tag entails swapping Disney stock for Comcast stock, and Comcast's assuming nearly $12 billion in Disney debt. Disney's shares soared and Comcast's slumped on the news.

Comcast's bid was announced in New York and is stunning both in its stealth - word of the blockbuster deal did not leak in the gossipy media world even though it had been discussed at the top levels of Comcast since Thanksgiving - and ambition. Comcast officials first made a formal offer to Disney's top executive officer, Michael Eisner, earlier this week and were rebuffed. Going public yesterday, Comcast was trying to take its offer to Disney's shareholders and corporate board.

If an agreement were reached between the two companies, it would face stiff regulatory scrutiny from federal officials.

Analysts and other experts said that Disney was vulnerable and that Comcast had a good reputation for doing deals. But Disney takes Comcast into new and unfamiliar business territory. Another bidder could come forward with a higher price, they said.

At a news conference at the St. Regis Hotel in New York, Roberts, Comcast's chief executive officer, said the cable company could restore Disney to its former glory by improving its brands and giving them broader distribution on its cable network. "We think we are ready to take the next logical step: entertainment," Roberts said.

Comcast would keep its headquarters in Philadelphia, while Disney's would remain in the Los Angeles suburb of Burbank, Roberts said.

"There's no doubt in my mind as I stand here today that the two companies are better off together than they are apart," Roberts said.

He said he would not share details of his conversations with Eisner. But in a letter to Eisner that he made public, Roberts said it was "unfortunate" that Eisner had not agreed to discuss a merger.

After the news conference, Roberts pressed his case for the deal in news interviews. It was greeted with shock in the Philadelphia region, which is used to companies being bought out, closed down, or moved out.

"Holy camole," said Randall Miller, history professor and Philadelphia expert at St. Joseph's University, when told. "Talk about ambition. This harks back to the end of the 19th century when we actually had ambition. This is amazing."

Even if Comcast fails, the effort could have symbolic value, Miller said. Philadelphia's corporate decline has been "stultifying" to those who have stayed, and this bid to create a modern media giant could be a "cultural leap" for the city, he said.

But, Miller cautioned, Comcast might transform itself into an entertainment company and eventually shift its operations out of Philadelphia to California. "They might think they are operating on another stage," he said.

Only a decade ago, Comcast was a modest, well-run cable company in Philadelphia controlled by an elderly gentlemen, Ralph J. Roberts Sr., and his son, Brian. They now want to be entertainment giants in the Hollywood mold.

Comcast grew quickly in the late 1990s by buying other cable companies as the industry consolidated around large players.

In 2002, Comcast gobbled up the cable properties of AT&T, vaulting itself to the No. 1 position. At the time, the AT&T cable operations, which had 13.5 million subscribers, were larger than those of Comcast, which had 8.4 million subscribers.

Some did not think the deal, initially valued at $58 billion in stock and debt, would happen. But the company fooled the naysayers.

Still, on paper at least, Comcast seems an unlikely acquirer of Disney. Comcast had revenue of $18.3 billion in 2003, compared with $27.1 billion for Disney.

But the Magic Kingdom has lost the financial magic of past eras. Some events have been beyond the company's control: Terrorist fears after Sept. 11 weakened attendance at its 10 theme parks. In the last five years, the company's stock price, after hitting a high of more than $43, fell to about $15.

Other wounds have been self-inflicted. Disney CEO Eisner is regarded as insensitive to shareholders and a difficult personality. In a widely publicized spat, Roy Disney - the last Disney family member on the company's board - quit in December, saying that the company needed fresh blood and that Eisner should go.

Disney's board released a statement yesterday saying it would "carefully evaluate" Comcast's offer. But the board cautioned shareholders not to take any action in the meantime.

Comcast also boasted yesterday that one of its top executives, Stephen B. Burke, had been a top executive at Disney. Burke ran Disney-owned television and radio stations and the Disney theme park in Paris.

Whatever happens with the bid, Philadelphia will play a role. Disney had previously scheduled its annual shareholder meeting for March 3 at the Convention Center in Center City.

Analysts and other experts were trying yesterday to understand the financial breadth of Comcast's offer and were anticipating that other bidders would emerge for Disney.

Ellen Goodman, a professor who specializes in media law at the Rutgers University School of Law in Camden, said: "If Disney shareholders want to sell it, there are more potential buyers. I definitely see a bidding war. Maybe Microsoft. Yahoo. But I don't know what kind of cash they have. Think of anyone who has distribution, but doesn't have content."

Goodman said the deal would likely drag on for months. "This is just the beginning of it."

Matthew Harrigan, an analyst at Janco Partners Inc., an investment-banking firm in Greenwood Village City, Colo., said: "If you're going to go after Disney, now's a pretty good time to do it." Still, Harrigan said, the deal has "no better than a 50-50" chance at this point.

"Some would argue that Disney is outside of Comcast's core competency," he said. "Running an animation business or a theme-park business - even if you're Steve Burke - it's not the same business" as cable.

Disney shares yesterday soared $3.52 a share, to close at $27.60. This was well above Comcast's initial offer, which amounts to $26.49 a share, indicating that Wall Street believes that other bidders could appear.

Comcast's shares fell $2.84 a share, to close at $30.10. The cable company would assume substantial debt in the deal, a prospect that could frighten investors.

David L. Cohen, executive vice president at Comcast, said in an interview that the cable company was prepared for a fight. "This is a company that is very careful and very strategic and does not undertake these kinds of things lightly. If we didn't think we had a reasonable chance of pulling this off, we would not have gotten into it."