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Get Four
|  | FEBRUARY 11, 2004
By Amy Tsao The Early Betting Is on Comcast While analysts expect the final price will be higher -- and other bidders could emerge -- they don't see Disney escaping unmerged The timing of Comcast's (CMCSA ) unsolicited offer to buy Disney (DIS ) for $66 billion -- $54 billion in stock plus $12 billion in debt -- on the very day of a Disney investor meeting in Orlando suggests that the Philadelphia-based cable operator means to catch its mouse. "This is Comcast getting the warning shot off ahead of the analyst meeting," says Andy Valerie, equity strategist at Boston-based brokerage LPL Financial. It also means Disney is in play, analysts say. The price tag is high, but other hunters could be out there stalking big-name entertainment prey. Disney's stock jumped on news of the hostile bid, and unless another suitor emerges, analysts say they see the Comcast deal happening -- at a higher price, of course. The proposal of 0.78 Comcast class A shares for each Disney share represents a 10% premium to Disney's Feb. 10 closing price of $24. As of midday on Feb. 11, Disney had already gained 15%, to $27.50. Comcast likely will have to raise its offer to $30 per share, analysts say. EXPANDING THE ROOF. Does Disney like it? Execs at the entertainment conglomerate, which includes the ABC network and ESPN, a movie studio, and theme parks -- may have no choice. Shareholders have largely been disenchanted by Disney's ho-hum performance over the last several years and will likely be pleased at the prospect of having something to show for their perseverance. The Comcast deal will be "hard for the board to turn down," says Rob Uek, vice-president at Boston-based John Hancock Advisors. (Uek says the firm owns both Disney and Comcast stock.) Like other media and cable mergers before it, the goal is for the content and the distribution means to be under the same roof. Owning at least some of the programming that it sends through its cable connections is seen as a smart move for Comcast, which is looking for its next growth opportunity after digesting AT&T's (T ) broadband business. "ESPN is the crown jewel of the deal," says Valerie. The Disney library of animated films would be a natural to offer on Comcast's nascent video-on-demand service offered to digital cable subscribers. Notes Uek: "Comcast's largest expense is programming. If you can control those costs and bring them in-house, margins are much more attractive." EXIT EISNER? The deal could also mean the sale of Disney's theme-park business. Comcast says it would hold on to them, but many expect it would divest the $14 billion asset down the road. "There's not a lot of synergy there," Uek says, noting also the increased competition in theme parks. "I prefer companies that are more focused. A media company with great content and great distribution doesn't fit with theme parks." Probably of more interest to industry watchers is that the merger could spell the demise of Disney's beleaguered CEO and Chairman Michael Eisner. He won't likely allow the sale without a fight, but analysts figure he'll ultimately lose. "It will probably be a prolonged process," Valerie says, noting Eisner's tight control of the board. "I think it will be late spring or early summer" before the deal is done. Says Uek: "It's clear that [Comcast] CEO Brian Roberts and President of Comcast Cable Stephen Burke would be in charge." Experts say Roberts shouldn't be underestimated and that he likely thought long and hard about how a hostile bid would play out. He knows Comcast's growth is tied to getting some entertainment assets in-house. But Eisner has a track record of being a wily survivor. Either way, the joining of media giants and cable distributors is in vogue even if proof of their viability in the U.S. remains to be seen. Regulators have only recently approved the merger of Rupert Murdoch's News Corp. (NWS ), which owns the Fox TV franchise and film studios, with Hughes Electronics' DirecTV satellite-TV service. And the three-year-old marriage of Time Warner (TWX ) and AOL has been hardly smooth going. Someday soon, Comcast and Disney may also be trying to make a merger work.  Tsao covers financial markets for BusinessWeek Online in New York Edited by Beth Belton
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