Comcasts Upstart Bid for Disney Revives Painful Memories

On the face of it, Comcasts unsolicited $54 billion buyout offer of the Walt Disney Co. conjures up painful memories of some of the failed turn-of-the-century mega-mergers.

Comcasts deal-making and vaulting ambition to become a media giant is uncomfortably reminiscent of the dizzying ascents of WorldCom and AOL-Time Warner. WorldCom used the Internet investment bubble and fraudulent accounting to become a bloated telecommunications behemoth until it collapsed under the crushing weight of its debt load.

AOL, seeking to wed its Internet access network with a world-class entertainment and content producer, used grossly inflated stock values to become the scrawny tail that wagged the Time Warner mastiff.

There is no indication that Comcasts growth has been built on foundations of financial quicksand. Nor can it exploit a humbled stock market that spent the last three years taking a severe cure for the irrational exuberance of the late 90s.

But we can only hope that the market regulators do a better job than they did a few years ago to ensure Comcast isnt biting off more than it can chew in its quest to buy Disney.

Comcast is offering 0.78 of a share of its Class A stock for each share of Disney stock. This would give Disney shareholders 42 percent of the merged companys stock. The deal would include Comcasts assumption of $11.9 billion of Disney debt, make the total cost of the merger $66 billion.

Using its 2001 acquisition of AT&T Broadband as a springboard, Comcast is seeking the same kind of vertical integration that drove AOLs merger with Time Warner. It wants to combine Disneys rich entertainment, television and sports assets with its cable subscriber base that totals more than 21 million and a service network that is dominant in 22 of the nations top 25 metropolitan areas.

Next page: Maintaining growth through acquisitions.