Disney's Board Rejects Comcast's Offer



Walt Disney Co.'s board Monday night unanimously rejected Comcast Corp.'s unsolicited takeover offer and offered a vote of confidence for Disney Chairman and Chief Executive Michael Eisner, tossing the ball back into Comcast's court as Disney prepares for its crucial March 3 annual meeting.

Comcast's bid, valued at $47.97 billion plus $11.9 billion in Walt Disney debt, was made Wednesday. In a statement, Disney's board seemed eager to shift the focus toward its concern for shareholder value and away from criticisms of Mr. Eisner's performance.

The board said it would "consider any legitimate proposal" that would create shareholder value, and added that the board "has confidence in the business, financial and creative direction under the leadership of Michael Eisner and his management team."

Responding to the Disney rejection, a Comcast spokeswoman said Monday night that the company maintains its belief that its offer "represents a sound and compelling proposition for both sets of shareholders." She said the Comcast proposal "reflects a full and generous valuation" that represents "a significant premium over Disney's unaffected share price during any relevant measurement period over the last three years." The move sets the stage for Disney's March 3 annual meeting in Philadelphia, which isn't only the home of Comcast, but also the place where two former Disney directors, Roy E. Disney and Stanley Gold, are planning to lead public rallies as part of their campaign to persuade shareholders that they shouldn't re-elect Mr. Eisner as chairman. Philadelphia was selected as the Disney meeting's site more than a year ago, to show off the fact that Disney owns a strong television station there.

The Comcast and Roy Disney camps say they aren't in cahoots, and over the long term, their interests may or may not be aligned. But for the two weeks leading up to Disney's meeting, their efforts will feed each other.

That is because, underneath Comcast's takeover offer there lurks something that is more like a proxy fight aimed at replacing Disney's management. Comcast's initial bid offered Disney shareholders almost no premium, and even that was erased by the market in recent days. Essentially, the bid was telling Disney shareholders: If you are unhappy with Mr. Eisner, let us run the company.

Now that Disney's board has rejected Comcast's bid, the March 3 meeting offers an instant referendum on just how angry Disney shareholders are with Mr. Eisner -- with big consequences for the direction of the takeover fight. A large shareholder vote against Mr. Eisner's re-election to the company board would instantly add fuel to Comcast's fire. At that point, the Disney board would face a narrowing list of choices, including selling to Comcast at a relatively low price or replacing Mr. Eisner as chairman and CEO.

If Mr. Eisner receives solid support at the meeting, it could force Comcast to cough up a higher bid or reconsider its approach. That may be why Comcast is subtly distancing itself from the efforts of Messrs. Disney and Gold. The next two weeks, then, promise an intense three-way firefight over Disney's future -- with each party playing a precarious hand.

For Disney's Mr. Eisner, survival may depend on his willingness to abandon tactics that have helped him prevail in past battles. Until now, Mr. Eisner has usually engaged his critics mano a mano, earning a reputation as one of the toughest corporate infighters around. That is why he remains at Disney, while foes -- from former studio chief Jeffrey Katzenberg to Roy Disney -- don't.

In this fight close advisers, including top Disney executives and board members, are urging Mr. Eisner to let the Disney board be seen as controlling the response to Comcast. One person close to the matter says that Mr. Eisner has been told repeatedly in recent days: "This is not your fight. This is a company issue that the board needs to resolve."

In an age of stricter governance practices and greater director independence, these people say Disney's board can't allow the perception that Mr. Eisner's desire to keep his job is blocking the company's shareholders from the best outcome. Disney faces an especially high hurdle in that department, as its board -- which once included Mr. Eisner's personal lawyer and numerous other close allies -- has long been criticized by governance experts as too beholden to him. But keeping Michael Eisner in the background won't be easy. Some people close to him say he is naturally eager to engage in the battle to save his job.

So far, Comcast and Disney's dissident ex-directors have avoided directly communicating with each other, instead maintaining a sort of unspoken understanding. Many of the points made in Comcast's initial presentation of its bid echoed the case that Messrs. Gold and Disney have made in recent weeks.

The shareholder meeting puts Comcast in a delicate position, however. On one hand the company, which has a history of striking takeover targets when they are vulnerable, clearly is making a run at Disney now because Mr. Eisner is weak. Many believe Comcast CEO Brian Roberts timed the bid to come before the Disney meeting to give shareholders a compelling alternative to Mr. Eisner's management.

But Comcast also doesn't want to be tied publicly to Messrs. Disney and Gold's bid to unseat Mr. Eisner. Rather, in his appeal to Disney and Comcast shareholders, Mr. Roberts has been stressing Comcast's strong management, new ways of transmitting Disney's content over Comcast's networks and other ways of expanding the merged company. This message would be obscured if it is too closely associated with the negative campaign against Mr. Eisner by the former directors. "This is not about Michael Eisner or Roy Disney," Mr. Roberts said. "This is about presenting a compelling vision to combine two great companies into one premier entertainment and communications company ... "

Mr. Roberts's advisers also believe that the former directors will likely get no more than 10% to 20% of the votes at the meeting, partly because they haven't presented a strong alternative to Mr. Eisner's management. The last thing Comcast wants to do is align itself with a losing proposition. Comcast executives also are concerned about appearing too overbearing. Indeed, when Messrs. Disney and Gold resigned from the board late last year, some of Mr. Roberts's advisers suggested he make his run at the company then, people familiar with the matter say. But he opted against it because he wants Comcast's takeover effort to be viewed as distinct from what Mr. Disney is doing, these people say. Comcast executives also have been emphasizing that they haven't had any contact with Mr. Disney before or after the company made its bid. They point out that it isn't even clear that Mr. Disney would favor the merger they are proposing.

As for the annual meeting, clearly it would strengthen Comcast's argument that a management change is needed if shareholders vote against Mr. Eisner. But Comcast executives aren't lobbying Disney shareholders. Their official position is that whether Mr. Eisner wins or loses, their plans will stay the same. After the Comcast bid was announced, Messrs. Gold and Disney made positive noises about it without actually offering an endorsement. Mr. Gold said the bid provided "validation" for the positions he and Mr. Disney have staked out, an idea reinforced in a letter they sent Disney shareholders.

The Comcast bid wouldn't deliver any immediate windfall for Mr. Disney's 17 million shares. And selling Disney to the nation's largest cable company might not be the way to restore the old-style "Disney values" -- such as the restoration of its feature-animation unit, or improving maintenance at Disney theme parks -- the dissidents have been seeking.

Write to Bruce Orwall at bruce.orwall@wsj.com and Peter Grant at peter.grant@wsj.com