Comcast Proposes Merger With Disney

Comcast President Steve Burke, a former Disney executive, today 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.

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.

In announcing its bid, Comcast also released a letter Roberts sent to Eisner after the Disney chief refused to discuss the offer.

"Given this, the only way for us to proceed is to make a public proposal directly to you and your board," Roberts' letter said.

Comcast proposed to issue 0.78 of a share for each share of Disney stock, providing Disney shareholders with a premium of more than $5 billion, based on stock prices as of closing Tuesday.

Under the proposal, Disney shareholders would hold 42 percent of the combined company.

Disney's stock jumped 14.62 percent to close today at $27.60. Comcast stock dropped 8.62 percent to close at $30.10.

David Miller, an analyst who covers Disney and other media companies for Sanders, Miller and Harris in Los Angeles, said the jump in Disney stock will force Comcast to increase the price.

"We think this is a lowball bid," Miller said. "Comcast is only offering a 9.9 percent premium over the Tuesday close. Disney is already trading higher than that today. Wall Street is telling Comcast they will have to up the offer. Shareholders will want more for their shares."

He said it is not uncommon for a company making a hostile bid to have to come back with several offers if the board rejects the initial offer.

But he also 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, said Tom Wolzien, a media analyst with Sanford C. Bernstein. "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."

Analysts: ‘Perfect Merger Partners’

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.

Analysts took a positive view of the proposed deal, saying it would create a media powerhouse that would be a strong competitor with media rivals News Corp. and Time Warner.

"We regard Comcast and Disney as perfect merger partners," said Merrill Lynch analyst Jessica Reif Cohen. "Comcast's long history of deal execution has been completely extraordinary in terms of shareholder value creation.

"The rationale behind the merger is identical to the News Corp.-DirecTV combination, which is a combination of content and technology," she said. "In this case, Comcast's broadband technology is superior to satellite, creating even more opportunities."

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