Disney Seen Valuable As A Standalone Company
By Dwight Oestricher

NEW YORK -- Walt Disney Co.'s (DIS) diverse businesses still make it a valuable entertainment company before any potential combination with aggressive suitor Comcast Corp. (CMSCA CMCSK).

The combination would make a powerful media company, but Disney could fight off Comcast's advances, and Comcast could walk away if the deal becomes too expensive, analysts said.

The merger would create a global media powerhouse, such as Time Warner Inc. (TWX), Viacom Inc. (VIA, VIAB) and News Corp. (NWS), said Merrill Lynch analyst Jessica Reif.

She said in a research note that Disney's business model was "increasingly vulnerable," given its lack of depth in broadcasting and the tenuous relationship with major cable and satellite system operators. Disney has crossed swords recently with Cox Communications Inc. (COX) over the rates it charges Cox to carry Disney's popular ESPN cable network.

Reif Cohen laid out her valuation for Walt Disney, putting the theme parks' business worth at $7.84 a share; the ABC network at $1.75; the ABC stations group at $3.08; radio stations at $2.31; cable networks, which includes ABC Family but mostly reflects ESPN, at $13.74 a share. She valued studio networks, which include Disney, Touchstone and Miramax, at $6.31 a share and consumer products at $1.97 a share.

After subtracting corporate expenses and net debt and adding in unconsolidated investments, Reif Cohen came to a residual equity value for Disney of $31.21.

Comcast offered Wednesday to swap 0.78 of a Comcast Class A share for each Disney share. Based on Comcast's low price of $28.89, that would value Disney at $22.54 a share, under the low of $26.85 that Disney reached Friday. The offer also includes Comcast absorbing $11.9 billion in Disney debt.

Disney's stock has made gains since Comcast made its offer, rising to a 52-week high of $28.41 Thursday. But the stock recently was down $1.05, or 3.7%, to $26.95.

Based on Thursday's close of $28, the deal will probably become more expensive for Comcast to grab Disney, said Fulcrum Global Partners analyst Richard Greenfield. If Comcast should offer a higher price, maybe including cash, the deal would be more dilutive and turn Comcast into a leveraged entity - just what it was trying to avoid after completing its acquisition of AT&T Broadband in 2002, Greenfield said.

Since Greenfield is of the opinion that Disney "is not a great company," he said paying more "appears crazy if you're Comcast." Although Comcast offered a fair price, Disney investors want an "unrealistic" price based on the earnings momentum of Disney.

Disney will probably reject the Comcast offer as illogical at the current price, Greenfield said. Comcast will then make a second, better offer, but if that fails to sway Disney, Comcast would walk, Greenfield said.

Disney's growth as a standalone company looks just fine, said Citigroup Smith Barney analyst Jill Krutick. The meetings Disney management held with analysts and investors Wednesday and Thursday increased Krutick's confidence in the long-term outlook for Disney. As a result, she raised her fiscal 2005 earnings estimate on the company to $1.10 a share from $1, while she kept her projection for the year ending September 2004 at 93 cents a share.

Krutick said in a research note that she had a more optimistic outlook on the cable networks, broadcasting, consumer products and theme parks divisions.

As for the Comcast offer, Krutick said Disney will probably reject it based on price and the lack of major strategic merits. Disney could instead unleash value by selling assets, paying a special dividend , making its own acquisition in the satellite television, broadcast and/or cable networks, she said.

She also suggested that Disney clarify a succession plan or look for partners that would support its agenda, which would help fend off hostile bids.

Fulcrum Global Partners doesn't have an investment banking relationship with Disney and the analyst doesn't own the shares.

Citicorp Global Markets has an investment banking relationship with Disney and is a market maker in the stock, but the analyst wasn't listed as an owner.

Merrill has an investment banking relationship with Comcast and Disney. The firm and its affiliates owns 1% or more of Disney and the analysts covering the Comcast own the stock.

-By Dwight Oestricher, Dow Jones Newswires; 201-938-5266; dwight.oestricher@dowjones.com

Updated February 13, 2004 3:30 p.m.