Comcast bids for Disney

Comcast Corp., the nation's largest cable television operator, made a surprise, hostile $54.1 billion bid yesterday to acquire entertainment giant Walt Disney Co. that would turbocharge the rapid consolidation of US media ownership.

If accepted by Disney's board and investors, the deal would bring Disney studios, the ABC Television network, cable channels, and famed theme parks into Comcast's corporate empire. The Philadelphia company has 21.5 million cable TV subscribers and 5.3 million high-speed Internet users and provides cable TV in two-thirds of Massachusetts cities and towns.

Comcast's control of a key source of its TV programming, including the ESPN sports channels, which have helped drive soaring cable rates in recent years, theoretically could help slow future increases in cable bills. However, Comcast would also take on nearly $12 billion in new debt, and it gave no assurances it would pass along programming savings to customers instead of to shareholders.

Comcast also said it is eager to explore new ways of delivering ABC and Disney content to subscribers' TV sets and computers, including making ABC news and entertainment shows available on an "on demand" basis for cable subscribers throughout the day.

The proposed deal alarmed critics of the wave of media consolidation, which has included acquisitions of satellite broadcaster DirecTV by News Corp. and General Electric Co.'s NBC unit's bid for Universal Studios American operations. Federal regulators are lifting restrictions on cross-ownership of television stations and newspapers in large media markets.

"This is an incredibly compelling combination," Comcast chief executive Brian L. Roberts said at a New York press conference trumpeting the deal. "This combination would create one of the world's premier entertainment and distribution companies and attempt to restore the Disney brand name to its prominence," Roberts said.

ABC has plunged to fourth place among networks, and Disney's animated film studios have struggled to generate hits.

"There is simply no doubt in my mind," Roberts said, "that the two companies together are better than either part by itself."

Stephen B. Burke, president of Comcast's cable operations, would mastermind the integration of Disney into Comcast. Burke, who spent 12 years working in top positions at Disney running three of its four major operations, said yesterday that he has extensive plans to improve Disney operations, including ABC, the cartoon studios, and the theme parks.

Disney chief executive Michael D. Eisner, who rebuffed Roberts' request for merger talks this week, had no comment on the offer, which the company said it would "carefully evaluate." The Comcast bid came as former board members and top investors, including Walt Disney's nephew Roy Disney, are hounding Eisner to resign and Disney stock has lagged behind many entertainment and media companies. Pixar Animation Studios Inc., creator of such children's movies as "Monsters Inc." and "Finding Nemo," dumped Disney as its distribution partner last month.

Analysts said Comcast appeared to be trying to exploit a favorable political-regulatory climate that may change if President Bush loses reelection in November. The Federal Communications Commission, currently controlled by Bush GOP appointees, has generally been highly amenable to media megamergers including the $175 billion America Online-Time Warner combination in 2001. Burke has raised over $200,000 for Bush's reelection campaign.

FCC chairman Michael K. Powell promised that "a merger of that magnitude will undoubtedly go through the finest filter at the commission as is possible," but most analysts predicted it will face no serious antitrust challenges.

Media consolidation critics who contend that a handful of corporations already have excessive control over what Americans watch, hear, and read slammed the Comcast-Disney proposal.

"If this deal goes through, it tightens the ownership grip over the most important sources of news, information, and entertainment in our country," said Gene Kimmelman, senior public policy director for Consumers Union, a Washington lobbying group.

US Representative Edward J. Markey of Malden, the top-ranking Democrat on the House telecommunications subcommittee, said that "any such merger would deserve the utmost scrutiny and a full review from regulators," with particular attention to "the effect this merger may have on competition, diversity, and cable consumers."

Comcast already dabbles in owning programming, including interests in a sports channel covering the Comcast-owned Philadelphia hockey and basketball teams, E! Entertainment Television, the Golf Channel, and Newton-based New England Cable News.

Jonathan Hurd, vice president of Boston consulting firm Adventis, said Comcast's Disney bid may also be a defensive tactic as Rupert Murdoch's News Corp., which owns the Fox TV and movie units, takes a controlling interest in DirecTV. "Owning Disney is potentially a bargaining chip for them if Murdoch tried to hold content hostage" and restrict Comcast access to Fox programming, Hurd said.

Comcast proposed offering stock for Disney worth $54.1 billion at the market close Tuesday. Disney shareholders would get Comcast stock tax-free at the rate of 78 shares for each 100 Disney shares they now own, with Disney investors owning 42 percent of the combined company. Comcast also proposed absorbing $11.9 billion in Disney net debt, giving the deal a total value of over $66 billion.

As is customary for companies launching takeover bids, Comcast shares slumped after yesterday's 7 a.m. announcement, dropping by nearly 8 percent to $31.23 per share. Disney shares jumped 14.6 percent to $27.60 on rampant speculation Disney might press Comcast for a higher bid or solicit a rival bidder.

Despite its ABC and animated studio woes, Disney earnings for the quarter ending Dec. 31 reached 33 cents per share, beating Wall Street estimates, as revenues jumped 19 percent from a year earlier to $8.5 billion.

But Burke said Comcast could improve the financial performance of Disney properties by up to $1.2 billion annually in the same way it has overhauled the former AT&T Broadband cable unit it acquired in November 2002.

"Since about 1999 the Disney animated studios have not produced the kind of quality product that is absolutely central to the heart of what the Disney business is," Burke said, adding that overall "there are tremendous new business opportunities."

Peter J. Howe can be reached at howe@globe.com.