Comcast Seeks Status Change with Disney Buyout

With a $54 billion bid for Disney, Comcast launched its plan to move up from the broadband and media-distribution market to become a major player in the content market.

Comcast Corp. on Wednesday launched a bid to become one of the largest media and entertainment companies in the United States with a $54.1 billion unsolicited offer to buy the Walt Disney Co.

Industry insiders said the move will let Comcast expand its holdings from the increasingly competitive cable-networking market and phone business to control an entire content-distribution chain, from the creation of content to the interactive set-top box.

Comcast, already the largest cable television service in the United States, wants to combine its national media-distribution network of 21 million cable subscribers with Disneys rich entertainment and sports assets, which include the Disney and Miramax film studios, international theme parks, ABC Television Network, ESPN and other sports channels.

/zimages/5/28571.gifWhat do theme parks have to do with technology? Click here to read how Disneys braintrust uses sensors and other technologies to improve the customer experience.

The deal, however, may take some doing, since Comcast is attempting to take over a company that is larger both in terms of revenue and staff. For example, in 2003 Disney generated $27 billion versus Comcasts $18.35 billion. Comcast has about 67,000 employees; Disney, about 112,000.

Besides its cable subscribers, Comcast has 5.3 million high-speed Internet subscribers and 1.3 million digital telephone subscribers.

Furthermore, Comcast has already shown it is not shy about making blockbuster business deals. The bid for Disney comes less than 18 months after Comcast bought AT&T Broadband in December 2001 in a stock swap worth $72 billion.

AT&T rebuffed Comcasts initial $58 billion hostile offer. But further talks allowed the two companies to reach agreement on the deal.

Comcast President and CEO Brian Roberts said during a news conference that during the past year, Comcast has reduced by $10 billion the debt that came with the AT&T Broadband merger.

If Comcast succeeds, it would create a cable-distribution and media company that would rival News Corp. and Time Warner Inc.

/zimages/5/28571.gifLast year, News Corp. looked to combine content holdings, sports teams and streaming content delivery with its bid for the DirecTV satellite television service. Read more about it.

Comcast publicly announced its offer Wednesday after Disney CEO Michael Eisner declined Comcast CEO Roberts request for private talks about merging the two companies.

The Disney board of directors also on Wednesday released a statement saying it will "carefully evaluate the unsolicited proposal" while it continued to discuss with investors is own plans for realizing long-term value from the companys assets.

During a conference with media and investment analysts, Steven Burke, a former Disney executive and now president of Comcasts cable division said Wednesday the buyout "represents a chance of re-igniting one of the worlds great entertainment companies."

In particular, Burke claimed that since 1999, "the Disney animation studios have not produced the kind of quality productions" that fueled the companys growth through the 1980s and 90s. Comcast, Burke said, would "reach out to other companies that make quality animated products like [Pixar Animation Studios Inc.] and others" to enable Disney to regain its position as a producer of great animated films.

Comcast also said that the merger would improve the position of Disneys ABC Television network. Burke described ABC as a "weak No. 4" network behind CBS, NBC and the Fox network. Burke contended that under Comcast management, ABC would soon be a challenger for the No. 3 spot and generate new profits of $300 million to $500 million.

Burke said that in the first year, economies of scale and elimination of redundant operations would produce savings of $300 million to $400 million.

The buyout bid comes in the midst of a dispute between Disneys Eisner and dissident shareholders led by former corporate board members Roy E. Disney, nephew of corporate founder Walt Disney, and Stanley P. Gold. The two have been waging a highly public campaign to force Eisners resignation or retirement in the face of weak corporate revenue and earnings in recent years.

It also comes three weeks after Disney and Pixar broke off talks to continue their longstanding agreement under which Disney distributed Pixars digitally animated films.

On the financial front, Comcast is offering 0.78 share of its Class A stock for each share of Disney stock. This formula would give Disney shareholders 42 percent of the merged companys stock. Disney stock closed at $27.60 Wednesday, more than $1 above the Comcasts buyout price. Comcast would also assume $11.9 billion of Disneys debt.

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John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...