At a hotel directly facing one of Disney's sprawling merchandise stores, Comcast President and CEO Brian Roberts Wednesday laid out his strategy and rationale for Comcast's $66 billion unsolicited bid for control of The Walt Disney Co.
"This would create one of the world's premier entertainment and distribution companies, and attempt to restore the Disney brand name to its prominence and the Disney company to its growth, through the marriage of content and distribution," Roberts said at a press conference. "We think we're ready for the logical next step, and that, of course, is entertainment and content."
Comcast would leverage Disney's cable networks and content libraries to offer its 21.5 million cable subscribers new interactive and on-demand services, according to Roberts. He sees Disney's brands, particularly its ESPN sports network, as ripe for extensive marketing and cross-promotion with existing Comcast networks and other properties. Comcast would also focus on "reenergizing" Disney's theme parks and animation business, which Roberts characterized as deteriorating since Disney's mid-1990s glory years of producing hits like "The Lion King."
Other than private conversations between Roberts and Disney Chairman and CEO Michael Eisner, who rebuffed Roberts' merger proposal, Comcast has had no contact with Disney board members or shareholders, Roberts said.
The next step in the process is for Disney's board to evaluate and take action on Comcast's offer. Disney said Wednesday it has received Comcast's proposal and will begin that examination.
Meanwhile, Disney plans to hold a previously scheduled meeting with investors and analysts to discuss its business and its financial results from its recently ended quarter, which were announced Wednesday. Disney posted revenue for the quarter, ended Dec. 31, of $8.5 billion, up 19% from the prior year's $7.2 billion. The company had net income of $688 million, or 33 cents per share - significantly ahead of analyst expectations. The consensus estimate of analysts polled by Thomson First Call was for 23 cents in per-share earnings.
Comcast's stock-based offer works out to $26.47 per Disney share, based on Tuesday's closing prices for both stocks. That represents a 10% premium on Disney's $24.08 Tuesday close, totaling $5 billion overall.
Roberts was equivocal when asked if Comcast would go higher with its bid: Without commenting on whether Comcast would increase its offer, he noted that the company has walked away from deals before. Comcast ended merger talks in 1999 with MediaOne Group, which instead sold itself to AT&T.
Comcast would need regulatory clearances to acquire Disney, but Roberts said the company does not anticipate any antitrust issues. He cited News Corp.'s acquisition of DirecTV as a similar transaction which gained the necessary approvals. Industry regulations require cable companies that own broadcast networks to make those networks available to other cable operators, and Comcast would comply with those mandates, he said.
But the U.S. Federal Communications Commission won't green-light a Comcast/Disney deal without deep scrutiny, Chairman Michael Powell warned. "I don't know if Comcast will get Disney or not ... if it does, a merger of that magnitude will unquestionably go through the finest filter at the commission, I can assure you, as possible," Powell said in response to a question during a congressional hearing, according to a Reuters news report.
If Disney's board rejects Comcast's proposal, the company's next step could be a solicitation directly to Disney's shareholders. Roberts declined to say what Comcast will do if it receives a board rejection.
"We're just not going to go into any of those comments today," he said. "We hope to make this as friendly and amicable as possible, as quickly as possible."
If Comcast does pursue a tender offer against the wishes of Disney's board, it won't face one obstacle blocking the path toward another high-profile hostile takeover attempt - Oracle's bid for PeopleSoft. Unlike PeopleSoft, Disney doesn't have a "poison pill" anti-takeover provision in its bylaws. Disney let its poison pill lapse several years ago.
The specter of another media-and-distribution merger hung over Wednesday's meeting: The troubled union of AOL and Time Warner, whose new headquarters is just a few blocks from Wednesday's midtown Manhattan meeting spot. Asked how Comcast would avoid the pitfalls that troubled AOL and Time Warner, Roberts said the industry's history is full of both good and bad acquisitions. He cited CBS's combination with Viacom and Time Warner's acquisition of Turner Broadcasting, along with Comcast's recent purchase of AT&T Broadband, as mergers that worked.
Disney shares jumped 14% by midafternoon in trading on the New York Stock Exchange, to $27.34, while Comcast shares dropped 7%, to $31.55, in NASDAQ trading. Merrill Lynch & Co.'s research group cut its rating on Comcast's stock from "buy" to "neutral," citing near-term stock risks, but it also endorsed the deal by calling Comcast and Disney "perfect merger partners." Merrill Lynch has some investment banking services ties to Comcast, but is not serving as an advisor to Comcast on the Disney deal.
"Comcast's long history of deal execution has been completely extraordinary in terms of shareholder value creation," the firm said. "Comcast is clearly targeting the opportunity created by some recent Disney shareholder unhappiness. ... In addition, Disney has several large underperforming assets that are ripe for a turnaround, including the ABC TV Network and ABC Family."