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Wednesday,
February 11th,
2004
Comcast, the nation's largest cable
television operator, has offered to buy the Walt Disney Company,
in a surprise bid worth $66 billion the entertainment giant's
board said it would "carefully evaluate."
Comcast President and CEO
Brian Roberts said today the company was going public with the
unsolicited offer after Disney Chairman and CEO Michael Eisner
declined to enter discussions.
The proposed merger includes stock valued at $54
billion and assumed debt of $11.9 billion.
Disney confirmed the offer. "The Walt Disney
Company Board of Directors has received and will carefully
evaluate the unsolicited proposal from Comcast Corp," the company
said in a statement released today.
At a Disney investor conference in Orlando,
Fla., Eisner acknowledged the offer, but went no further than the
board of directors did.
"We did get an unsolicited offer today, which
the board of directors of the Walt Disney Company will take under
advisement, carefully consider and in due course have a response,"
Eisner said.
"The ball is in Disney's court," Comcast's
Roberts said today. "I don't feel that there's anything to be
bashful about. We think it's a very fair proposal. I hope the
board will consider it."
Government Scrutiny Promised
If the two giant companies were to merge, it
would combine the largest cable service provider — with 21 million
subscribers — with Disney's theme parks, movies, ABC
television and radio networks and the ESPN cable television
network. Comcast is also a major player in high-speed Internet
service, serving more than 5 million subscribers.
Comcast, which has grown rapidly in the past
decade, including with a merger with AT&T Broadband in late 2002,
calls the offer a wonderful opportunity to combine distribution —
which Comcast has plenty of — and content, in which Disney is
rich.
"This is a pretty compelling combination,"
Roberts said.
But amid questions of how the merger might
affect consumers, Federal Communications Commission chairman
Michael Powell, testifying before a Senate panel on an unrelated
issue today, said his agency would be watching developments with
the proposal closely.
"I don't know if Comcast will get Disney or
not," he said. "If it does, a merger of that magnitude will
unquestionably go through the finest filter at the commission I
can assure you that's possible."
Eisner Under Pressure
The proposal comes as Eisner resists pressure
from former board members Roy E. Disney, the nephew of
Disney founder Walt Disney, and Stanley E. Gold, who have
criticized his performance and his failure to establish a
succession plan as Disney's chief executive.
Among the criticisms was that Eisner allowed the
collapse of talks with animation studio Pixar to continue
the relationship responsible for such Disney hit movies as
Finding Nemo. The collapse of those talks increased the
pressure on Eisner to defend his strategy for the company.
Gold said he took Comcast's bid as "validation"
of the criticism he and Roy Disney have leveled at Eisner.
"We could not have asked a greater validation
than the presentation Comcast gave this morning," Gold said today
in a conference call. "What I would say is their presentation is a
validation of the kinds of things we've been saying."
"Strategically this makes
perfect sense for a studio operator to merge with a cable
distributor," he said. "It is about content merging with
distribution. There is not much overlap, which is good for
employees."
At the same time, Comcast will have to make its
case for managing such a diverse company, said Tom Wolzien, a
media analyst with Sanford C. Bernstein. "They don't really have a
record at all of running a conglomerate like a Disney or a Viacom
or a Time Warner ... the jury is out on whether they can do it or
not."
Analysts: ‘Perfect Merger Partners’
Roberts pointed to Comcast's merger last
November with AT&T Broadband — as well as the success of News
Corp.'s merger with DirecTV and the merger of CBS and Viacom — as
an example of how the proposal could be beneficial for Disney.
"Our management team has a proven track record
of successful integration of our merger partners," Roberts said.
Analysts took a positive view of the proposed
deal, saying it would create a media powerhouse that would be a
strong competitor with media rivals News Corp. and Time Warner.
"We regard Comcast and Disney as perfect merger
partners," said Merrill Lynch analyst Jessica Reif Cohen.
"Comcast's long history of deal execution has been completely
extraordinary in terms of shareholder value creation.
"The rationale behind the merger is identical to
the News Corp.-DirecTV combination, which is a combination of
content and technology," she said. "In this case, Comcast's
broadband technology is superior to satellite, creating even more
opportunities."
Jeffrey Rayport, chairman
of the business consulting firm Marketspace LLC in Cambridge,
Mass., said if the deal is done, it would create an entertainment
giant.
"This deal is huge potentially
in the sense that it takes a major broadcast network, ABC, it
links it up with the No. 1 cable provider in the United States,
and Comcast of course with the recent combination with AT&T
Broadband now has the better part of 25 million homes in the
United States," he said.
"It's another bet that when you bring the
world's richest collection — or one of the world's richest
collections — of content together with one of the world's most
robust platforms for distribution that you've got the chance to
dominate the media world in a unique way," Rayport said.
Would
Tie-Up Benefit Consumers, or Harm Them?
Some analysts predicted that if the deal went
through, it could result in lower rates for cable television
subscribers, though one company would control both a good deal of
the content available and how it is delivered.
"That's going to change the dynamics of what we
see and how much we pay for it, and I think for the most part for
the better," said Adam Theer,
director of communications studies at the Cato Institute in
Washington.
The Consumer Union, though,
said the proposed merger could be trouble for the public.
"If this deal goes through it tightens the
ownership grip over the most important sources of news,
information and entertainment in our country," said Gene Kimmelman,
senior public policy director for Consumers Union, which publishes
Consumer Reports. "Disney has an enormous package of
extremely popular, marquee programming and a national network that
would now be owned by the largest cable distributor in the country
which has little to no competition in most communities. The
potential impact is enormous."
Mark Cooper, of the Consumer Federation of
America, said the Comcast bid for Disney is "inevitable," calling
it the result of the "policy this [Bush] administration has
pursued … to reward really huge, vertically-integrated companies.
… There's less and less competition, and virtually no chance
anyone else can get into it, with fewer people controlling what
the public can see."
As examples of how the public can be hurt by
fewer and fewer companies having control of media, Cooper cited
Comcast's rejection of an anti-war ad from the Princeton, N.J.,
based Antiwar Video Fund around the Bush State of the Union
address, and CBS's refusal to sell time during the Super Bowl to
Move.org to run its "child labor" ad slamming the Bush deficit.
Disney released its quarterly earnings report
today, listing first quarter revenue at $8.55 billion, compared to
$7.1 billion a year ago, and profts at 33 cents, versus 5 cents
for the same period last year. Both figures were above the
company's estimates.
Comcast today reported a profit of $383 million,
or 17 cents per share, for the quarter ending Dec. 31. The company
credited the strong demand for its digital cable and high-speed
Internet services. Revenues jumped 58 percent to $4.74 billion.
NOTE:
Disney is the parent company of ABCNEWS.com and KABC-TV.
director of communications studies at the Cato Institute in
Washington.