M&A

Comcast Launches Hostile Bid for Disney

The target company is also under attack by two former dissident directors.
Stephen TaubFebruary 12, 2004

Comcast Corp. dropped a bombshell Wednesday when it made a $54 billion hostile offer for Walt Disney Co., whose corporate governance is under attack from former board members.

The largest cable operator proposed to exchange 0.78 of a Comcast class A share for each Disney share. This offer originally valued Disney at $26.47 a share, or 10 percent over Disney’s Tuesday closing price.

Comcast valued the deal as a whole at $66 billion, including the assumption of $11.9 billion in debt. The value of the deal sank throughout the day, however, as shares of Comcast fell nearly 8 percent. Investors and merger speculators, it seemed, expect that Comcast will raise its bid or that another company will top its offer.

If successful, Comcast would become one of the largest global media giants and add to its cable systems a tremendous array of content. In addition to its namesake film studio and theme parks, Disney owns the ABC and ESPN television networks.

“This is a unique opportunity for all shareholders of Comcast and Disney to create a new leader of the entertainment and communications industry,” said Brian L. Roberts, president and chief executive officer of Comcast, in a statement. “Not only would this merger create significant shareholder value, but it would also position the combined company to compete vigorously with other entertainment and communications companies, including newly created integrated distribution/content providers.”

“I know Disney’s businesses very well,” added Steve Burke, president of Comcast Cable, in a statement. “And I am confident that when we put those great brands and programming assets together with our distribution, there will be significant opportunities to produce compelling returns for shareholders.”

In its statement, Disney said it “will carefully evaluate” the offer, but that “in the meantime, there is no action for shareholders to take.”

Comcast’s hostile bid for Disney has been described in some accounts as a “bear hug” — an unsolicited offer, often at a premium, intended to persuade board members to accept or risk the wrath of shareholders. Comcast launched a similar campaign in 2001 with an unsolicited offer for AT&T Corp.’s cable assets, then known as AT&T Broadband. Comcast closed the deal more than a year later for $72 billion.

The bear hug comes at a tense time for Disney, whose governance is under attack by dissident former directors Roy Disney — the nephew of company founder Walt Disney — and Stanley Gold.

Disney and Gold are campaigning against the reelection of chairman and CEO Michael Eisner, whom they have accused of mismanaging Disney for the past decade, and three other directors at the upcoming shareholders’ meeting in early March. Ironically, the meeting will take place in Philadelphia, where Comcast is based.

In addition to their direct appeals to institutional shareholders, Disney and Gold have created a Web site — www.savedisney.com — and are offering travel discounts to any shareholder who wants to attend the annual meeting.

The Comcast offer came the same day that Disney was scheduled to report its fiscal (December) first-quarter earnings and was scheduled to meet with institutional investors in Orlando. Due to the unexpected offer, however, the company released its results before the stock market opened instead of after the market closed, as it had initially planned.

And the numbers were very good: Net income surged to $688 million, or 33 cents per share, from $107 million, or 5 cents per share, excluding the effect of an accounting change the prior year. Wall Street analysts were expecting earnings to come in at 23 cents per share, according to Reuters Research. Revenue rose more than 17 percent, to $8.55 billion.