Bid For Disney Too Low, Some Analysts Say

Walt Disney Company board members say they will evaluate Comcast's surprise bid to buy the entertainment giant, but the the nation's largest cable television operator may have to increase its bid if it wants to succeed, some analysts say.

The proposal, announced Wednesday by Comcast, included stock valued at $54 billion, which amounted to $26.49 per share of Disney stock, but on the heels of the announcement and Disney's strong quarterly earnings report, also released Wednesday, the company's stock surged in trading and closed higher than the offered price.

"That was the opening bid," said Tom Wolzien, a media analyst with Sanford C. Bernstein. "These deals often take months to play out. You could think of it as a chess match and I think the CEO of Comcast is known to be a savvy deal maker. He's not going to pay any price, but I think he knows he'll have to pay more."

Disney's quarterly report indicated that the surge Wednesday might not be a one-day fluke created by excitement over the merger proposal. If Disney continues on what CEO Michael Eisner called "the road to recovery," then Comcast's efforts to persuade the Disney board could be complicated, Wolzien said.

After the quarterly earnings report, listing first quarter revenue at $8.55 billion, compared to $7.1 billion a year ago, and profts at 33 cents, versus 5 cents for the same period last year, Disney's stock jumped 14.62 percent to close Wednesday at $27.60.

And the improvement Disney has shown over the last year could have played as much of a role in the timing of Comcast's move as the controversy over how Eisner has run the entertainment giant raised by former board members Roy Disney, the founder's nephew, and Stanley Gold.

"If Disney is on recovery, then the price of Disney would keep going up," Wolzien said. "So in a way, Comcast's decision to go after it now indicates that they think it's an opportunity. Disney did a nice job over this last quarter, they reported with record numbers thanks to Finding Nemo and Pirates of the Caribbean. So Disney is on the way back, just a question of how fast."

Comcast CEO Brian Roberts said Wednesday the company went public with the unsolicited offer after Eisner declined to enter discussions. In addition to the stock valued at $54 billion, the proposed merger would include assumed debt of $11.9 billion.

At a Disney investor conference in Orlando, Fla., on Wednesday, Eisner acknowledged the offer.

"We did get an unsolicited offer today, which the board of directors of the Walt Disney Company will take under advisement, carefully consider and in due course have a response," Eisner said.

"The ball is in Disney's court," Roberts said. "I don't feel that there's anything to be bashful about. We think it's a very fair proposal. I hope the board will consider it."

If the two giant companies were to merge, it would combine the largest cable service provider — with 21 million subscribers — with Disney's theme parks, movies, ABC television and radio networks and the ESPN cable television network. Comcast is also a major player in high-speed Internet service, serving more than 5 million subscribers.

Comcast, which has grown rapidly in the past decade, including with a merger with AT&T Broadband in late 2002, calls the offer a wonderful opportunity to combine distribution — which Comcast has plenty of — and content, in which Disney is rich.

"This is a pretty compelling combination," Roberts said.

Mergers haven't always worked out, though, as was shown by the breakup of the AOL-Time Warner marriage. However, the CBS-Viacom and News Corp.-DirecTV matches have been seen as successes.

Comcast President Steve Burke, a former Disney executive, identified animation as a key issue to be addressed and said if the merger went through, the new giant would reach out to companies like Pixar. Comcast wants to "do everything we can to empower the existing [Disney] animation group," he said.

Talks between Disney and Pixar recently ended, with Pixar saying it would find another partner after delivering two more films on its contract to Disney.

Burke also said there would be savings of $300 million to $400 million by eliminating overlapping elements in the two companies. "This would not affect the vast majority of employees," he added.

Comcast proposed to issue 0.78 of a share for each share of Disney stock, and Disney shareholders would hold 42 percent of the combined company.

Analysts' responses to the proposal were mixed.

David Miller, an analyst who covers Disney and other media companies for Sanders, Miller and Harris in Los Angeles, said that in terms of what the two companies do, the deal could be advantageous for both sides if it went through.

"Strategically this makes perfect sense for a studio operator to merge with a cable distributor," he said. "It is about content merging with distribution. There is not much overlap, which is good for employees."

At the same time, Comcast will have to make its case for managing such a diverse company, Wolzien said. "They don't really have a record at all of running a conglomerate like a Disney or a Viacom or a Time Warner … the jury is out on whether they can do it or not."

Roberts pointed to Comcast's merger last November with AT&T Broadband — as well as the success of News Corp.'s merger with DirecTV and the merger of CBS and Viacom — as an example of how the proposal could be beneficial for Disney.

"Our management team has a proven track record of successful integration of our merger partners," Roberts said.

Comcast Wednesday reported a profit of $383 million, or 17 cents per share, for the quarter ending Dec. 31. The company credited the strong demand for its digital cable and high-speed Internet services. Revenues jumped 58 percent to $4.74 billion.

But Comcast stock dropped 8.62 percent Wednesday to close at $30.10.

Disney is the parent company of