Comcast makes $54bn bid for Disney
From CNN/Money Writer Paul R. La Monica
Merger of Comcast and Disney would create an entertainment and communications giant.
NEW YORK (CNN/Money) -- Comcast Corp. has made a surprise offer to buy Walt Disney Co. for $54 billion, a deal that would create one of the world's biggest entertainment companies.
If successful, Comcast -- already the nation's biggest cable operator -- would own one of the three dominant broadcast networks -- ABC -- as well as the Disney film studio, ESPN, and other Disney assets.
"This is a unique opportunity for all shareholders of Comcast and Disney to create a new leader of the entertainment and communications industry," Comcast president and chief executive officer Brian Roberts said in a statement.
The proposed deal clearly puts more heat on Disney chairman Michael Eisner, who is already facing trouble at home with dissident ex-Disney directors Roy Disney and Stanley Gold. They are leading a hostile campaign urging shareholders to oust Eisner. Comcast said Eisner has been unwilling to discuss a merger.
Disney said in a statement that it "will carefully evaluate the unsolicited proposal" and urged shareholders to take no action.
But shares of Disney jumped more than 15.5 percent, to $27.82 after the opening bell Wednesday in New York, an indication from the market that Disney could fetch a higher price from other potential suitors.
Under the deal, Comcast would issue 0.78 of a share of its Class A stock for each Disney share, valuing Disney at about $26.47 a share, or a total of $54.1 billion. That's about 10 percent above Disney's closing price Tuesday.
Disney chairman Michael Eisner has been unwilling to discuss the deal.
Comcast would assume nearly $12 billion in debt under its proposal -- bring the total value of the proposed deal to about $66 billion.
George Smith, at Davenport & Co., said the premium to Disney shareholders "was not sufficient."
"It will take a good deal more than that for such a large company like Disney. Some think that Disney's stock is undervalued as it is even without Comcast's bid. A premium closer to 30 percent could really heat up the talks."
Compounding matters for Comcast is that Disney reported stronger earnings Wednesday. Disney was scheduled to report results after the closing bell but moved up the release, reporting earnings of 33 cents a share, up from 2 cents a year earlier, and 10 cents or more above most Wall Street forecasts.
Matt Hemberger, an analyst with the Arbitrage fund, a mutual fund that invests in takeover situations, said that a fairer takeover price for Disney is probably between $30 and $32 a share.
Comcast's Roberts says a merged company could compete vigorously with other industry players.
"I imagine that Disney's board would most likely reject the deal at this level," said Hemberger. "Comcast will have to come back to the table especially in light of Disney's earnings."
But during a conference call to discuss the deal, Merrill Lynch analyst Jessica Reif-Cohen congratulated Comcast, saying a merger would be "an amazingly brilliant combination."
Shares of Comcast, which also reported quarterly results Wednesday, slipped nearly 8.5 percent in early trading, to $31.07. Comcast posted a net profit of $383 million, or 17 cents a share, compared with a year-earlier loss of $51 million. Revenue came in at $4.74 billion, in line with Wall Street's forecast.
Disney shareholders would own 42 percent of the combined company under Comcast's proposal.
Roberts said during the conference call that he has yet to have discussions with Roy Disney, Gold or any other Disney shareholders. He added that he hopes Disney's board "would do the right thing." Gold and Roy Disney were not immediately available for comment.
Disney and Gold blame Eisner for mismanaging Disney over the past decade. Among the examples they have cited is the recent breakdown in talks with Pixar Animation to extend the computer animation collaboration that has brought Disney such hits as "Toy Story" and "Finding Nemo."
In an open letter released Tuesday, Disney board member and former U.S. Senator George Mitchell said the company's board of directors had met in January to consider a succession plan for Eisner and planned to explore the matter in greater depth in April.
During the conference call, Comcast Cable president Stephen Burke, who worked for Disney for 12 years before joining Comcast, said Comcast's first goal would be to restore Disney to the level of profitability it had a few years ago.
"We are not talking about taking Disney to unseen heights," Burke said.
Burke said that Comcast felt it could do a better job of getting distribution for some of Disney's cable channels, which include several ESPN networks, ABC Family and the Disney Channel. Burke also said he was confident that Comcast could operate Disney's ABC network on a break-even basis.
-- CNN/Money Writer Parija Bhatnagar contributed to this story