Disney, Struggling to Regain Glory, Gets $48.7 Billion Bid From Comcast
Already on Defense, Eisner Faces Biggest Challenge Of Nearly 20-Year Reign
Cable Giant's Huge Ambitions



For the past few weeks, Michael Eisner has been bashed like a Mickey Mouse piñata by critics who questioned his leadership of Walt Disney Co.

Now the question is: Did Roy E. Disney, Steve Jobs and Mr. Eisner's other antagonists soften up Disney for Comcast Corp. to crack open and grab the candy?

Comcast, the nation's largest cable company in terms of both subscribers and revenue, Wednesday launched an unsolicited $48.7 billion stock offer to acquire Disney, the entertainment giant that is perhaps Hollywood's best-known brand. Coming close on the heels of Comcast's $51 billion acquisition of AT&T Broadband in 2002, the offer reflects the company's hunger to own some of the movie and television programming that flows through its cable-television pipes to about 21 million households.

Comcast CEO Brian Roberts says creating programming is the next step, and that Disney's franchise in content, kids, movies, sports and news is "a natural fit" that can be delivered through Comcast's high-speed technology.


The timing of the offer seems designed to exploit one of the weakest moments in the career of Mr. Eisner, Disney's chairman and chief executive of nearly 20 years. Mr. Eisner is already fending off a campaign to oust him led by two dissident ex-directors. The pair, Roy E. Disney and Stanley Gold, say his leadership has drained the life from a once-great company. The company's stock is trading where it was six years ago; its earnings, after several years of declines, rebounded last year but remain below 1999 levels.

Mr. Disney's efforts have in turn emboldened other critics -- such as Pixar Animation Studios Chief Executive Steve Jobs, who recently terminated a key negotiation with Disney -- to launch their own broadsides.

Now Comcast, controlled by Philadelphia's Roberts family, is trying to move in for the kill shot. Comcast President and Chief Executive Brian Roberts made public a letter to Disney saying that Mr. Eisner earlier this week rebuffed his suggestion that their companies begin talks to combine. Disney's board met and issued a statement saying that it "has received and will carefully evaluate" the proposal.

The deal initially offered a 7% premium for Disney shares, plus the assumption of Disney's $11.9 billion in debt. But after Disney's shares jumped $3.52, or nearly 15%, to $27.60, and Comcast's class A shares fell $2.70, or nearly 8%, to close at $31.23, the offer price was $48.7 billion, which is below Disney's current market value of $56.5 billion. That means investors are betting that another bidder will emerge or that Comcast will sweeten its offer.

If the Comcast deal succeeds, it would create one of the world's top media and entertainment companies with $45 billion in annual revenue, a market value of $125 billion and 179,000 employees. Disney brings to the table its famous theme parks, its movie studio, its ABC network and ESPN sports network. Comcast, with the vast reach of its cable system can provide service to up to 40 million homes; it also owns stakes in everything from E! Entertainment Television to the Philadelphia 76ers.

But the bid calls into question Mr. Eisner's ability to survive yet another storm without a strong bench of allies to rely on. Mr. Eisner's direct, often-confrontational style has made him one of the least-loved moguls in Hollywood. After taking the reins at Disney in 1984, he was one of the superstars of the corporate world for the next decade, as Disney's theme parks drew big crowds and its animated films became beloved, profitable franchises. Yet he has been increasingly under siege in recent years as the company's performance has tailed off. Key executives such as former studio head Jeffrey Katzenberg departed. Mr. Eisner made missteps such as handing the company's presidency to agent Michael Ovitz, who only lasted 14 months in the job.

The first suggestion that Comcast might be planning something, according to a person familiar with the matter, came when Mr. Roberts recently began trying to contact Mr. Eisner through an intermediary -- George Mitchell, the former U.S. senator who is Disney's presiding director. Mr. Roberts reached Mr. Eisner directly on Monday, but their talk was very brief with Mr. Roberts asking to discuss a merger and Mr. Eisner declining. Disney executives on Tuesday discussed how they would respond if Comcast came back with something more specific.

But Disney was clearly in scramble mode Wednesday, responding to the public unveiling of the Comcast offer just hours before it was to begin a three-day analysts meeting at its Walt Disney World Resort here in Orlando.

Comcast's initial offer might have been laughed off in the days when Mr. Eisner was seen as a stronger leader. And even now people close to Disney's board say it isn't likely to leap at Wednesday's Comcast proposal. But the Disney board is on a crusade to demonstrate its independence from Mr. Eisner, and these people say that richer offers -- from Comcast or anyone else -- will be taken seriously, regardless of Mr. Eisner's feelings. That means the legendary Disney empire is in play.

At the front of the list of prospective rival bidders are two acquisitive media moguls: John Malone and Barry Diller. Both have the reputation and financial heft to be taken seriously as bidders. Mr. Diller, who is close to Mr. Eisner, is chairman and CEO of InterActive Corp., which owns Expedia, Ticketmaster and the Home Shopping Network. Mr. Malone is chairman of Liberty Media Corp., which holds interests in entertainment networks including the Discovery Channel and QVC. Both declined to comment.

Other media companies are less likely to emerge with rival bids. Rupert Murdoch said Wednesday his News Corp. wouldn't make a bid. Viacom Inc., which owns the CBS television network, would have regulatory problems buying Disney, owner of ABC. Time Warner Inc. is still mired in financial and accounting problems from its ill-fated merger with America Online Inc.

Disney plans to show its resolve in part by continuing with the conference it is conducting here, meant to showcase the company's much-improved financial performance in the last year. The company released its fiscal first-quarter earnings, which were especially strong, earlier in the day than expected Wednesday. Disney believes that any potential deal could face tough regulatory scrutiny from the Federal Communications Commission.

Comcast, which is also one of the country's leading broadband providers, believes it can increase profits of the combined companies partly by coming up with new ways to put Disney's content on TV and the Internet. "The bottom line is that we think it will accelerate the digital future," said Mr. Roberts, the Comcast chief executive, at a press conference Wednesday in Manhattan.

The offer once again presses the issue of whether so-called content creators such as Disney should be owned by the same companies that distribute news and entertainment to the public through cable systems, satellite services and broadcast networks. Numerous other such combinations have failed -- notably the disastrous marriage of America Online and Time Warner. But Comcast is ravenous for such a deal. Having grown from a small family business in Tupelo, Miss., into one of the media world's most feared players, Comcast believes it needs such a deal to level the playing field against rivals such as Mr. Murdoch's News Corp., which owns satellite systems all over the world that are fed by the company's Fox television networks and movie studio.

Disney, however, has avoided further forays into distribution after its mid-1990s purchase of Capital Cities ABC Inc., which gave it the successful ESPN cable networks but also saddled it with the struggling ABC network. As he opened the analysts meeting, Mr. Eisner reiterated his view that Disney's content will prove more valuable than the commodity of distribution. "We love being a content company," he said. "We've been a content company for many years. We do think that content is, if not king, [then] king and queen."

For consumers, a marriage of Disney and Comcast would likely mean new cable networks and entertainment-oriented Web sites targeted at people with high-speed Internet hookups. Comcast executives, for example, suggested that they might try to sell a package of Disney Web sites to broadband users in the same way that HBO is now marketed as a premium cable channel.

Although Comcast has coveted Disney for years, the takeover plan moved to the front burner in the first week of January when Comcast met with its longtime advisers at a hotel near the Philadelphia airport. The meeting ostensibly was to determine the company's strategic direction, but "everyone knew what we were really meeting about," said a person who attended the meeting -- and that was Disney.

Former AT&T Corp. Chairman and Chief Executive C. Michael Armstrong has served as chairman of the board of Comcast since the AT&T Broadband merger. People close to Comcast board members say Mr. Armstrong in recent weeks has been among those board members supportive of the charge to buy Disney.

The plan was officially hatched and advisers spent the next month putting it together. By last week, most of the plans were complete and Mr. Roberts called Mr. Eisner on Monday.

The call, according to two people familiar with the matter, lasted less than five minutes. Mr. Eisner told Mr. Roberts that he liked Disney's strategy "just fine" and wanted to keep it "as is," according to people briefed on the call.

When it became clear that Mr. Eisner wasn't interested, the Comcast team prepared a "bear hug" letter -- a traditional takeover strategy in which an unsolicited suitor publicly makes a bid.

In the foreground of the Comcast move has been its president, Stephen Burke -- whose father was a top Disney executive, and who himself worked as a senior executive at Disney for 12 years and was considered by some a possible heir to Mr. Eisner. In presentations Wednesday, Mr. Burke criticized the performance of a number of Disney divisions and predicted that Comcast would be able to increase the company's cash flow by $800 million to $1.3 billion within three years.

For example, Mr. Burke noted that Disney's ABC Network "is a weak No. 4" compared with the other major broadcast networks. He also criticized Disney's animation division and said if Comcast succeeds in its takeover, it would once again become "absolutely central to the heart" of Disney, he said.

The offer spotlights the shifting fortunes of two media players: Comcast's ascent from humble roots to become a media powerhouse and Disney's slide from its position as one of Hollywood's most lucrative goldmines.

Comcast got its start in 1963 when Ralph Roberts and two partners bought a cable system in Tupelo, Miss. Since then the company has grown steadily, becoming the country's largest cable operator in 2002 when it acquired the cable division of AT&T Corp.

During the company's rise, the Robertses developed a reputation for strong management, tough deal making and the habit of pouncing on companies when they were vulnerable. For example, Comcast launched its hostile bid for AT&T Broadband in 2001 when the unit was suffering from high debt and weak margins, and AT&T was planning to spin it off as a separate company.

The timing of Comcast's bid for Disney isn't optimal for the cable operator, coming less than 18 months after its buyout of AT&T Broadband. But people close to Comcast say the timing was partly motivated by the turmoil within the Disney boardroom.

Comcast also has succeeded in merging its cable systems with those owned by AT&T Broadband faster than expected -- giving some analysts hope that it could also handle the more difficult task of absorbing Disney. At the time of the merger, AT&T Broadband's operating margins were just under 20%, one of the lowest in the cable industry. Wednesday, Comcast released its earnings for the fourth quarter of 2003, showing margins of 38%, well on their way to 40%, the company's goal for the end of the year. Revenue and subscribers also were up, while the company's debt was down to close to $23 billion, or about $7 billion less than when the merger took place. Most important, the company projected that this year it will have $2 billion in so-called free cash flow, earnings before taxes, amortization and depreciation.

With its debt down and cash reserves growing, Comcast late last year began thinking about what to do next. On the top of the list was buying new content to put out on its cable network that already has more than 21 million subscribers and its high-speed data network that now has 5.3 million subscribers.

Last summer, Comcast considered buying the U.S. entertainment assets of France's Vivendi Universal but dropped out of the bidding because it felt the price was too high. With Vivendi no longer an option, Comcast set its sights on Disney. The company's cable networks, particularly ESPN, are especially attractive to the cable operator which, along with the rest of the industry, has seen its programming costs skyrocket in recent years. Most cable operators had to pay ESPN a 20% rate increase last year. Comcast executives also would love to have Disney's extensive library of programming to sell on its cable and broadband pipes.

With a strong survival instinct and gift for corporate gamesmanship, Mr. Eisner has until now deflected every challenge. But his skill as a corporate warrior is Thursday being put to its stiffest test. In recent weeks, he has been consumed with fighting the insurrection that began when Messrs. Disney and Gold resigned from the company's board after Mr. Disney was notified that a mandatory retirement policy would force him off the board. Stunned that he had been pushed out of the company bearing his family name, Mr. Disney launched a public campaign seeking Mr. Eisner's ouster.

The movement to replace Mr. Eisner comes at an odd time, given that Disney's financial performance steadily improved last year after several years of declining earnings. The company is projecting 30% earnings growth this year, barring unforeseen circumstances. Its movie studio had one of its biggest years ever year in 2003 with hits such as "Pirates of the Caribbean: The Curse of the Black Pearl."

But Disney's theme parks are still struggling to regain the success they enjoyed before the Sept. 11, 2001, terrorist attacks. Disney's ABC network has made improvements, but not the full turnaround that Mr. Eisner and Disney President Robert Iger have promised.

It's not yet clear whether Messrs. Disney and Gold have generated much support among institutional investors that hold the company's stock. Wednesday, however, the closely watched proxy advisory firm Institutional Shareholder Services recommended that its members follow Mr. Disney's lead and withhold support for Mr. Eisner at the Disney annual meeting next month.

In a statement, Disney called the ISS recommendations "inexplicable and unjustified" since Mr. Eisner "led the very changes that resulted in a board dominated by independent directors."

Regardless of how much support they ultimately attract, though, Messrs. Disney and Gold have created an unstable environment that affords an opportunity for others to take shots at Mr. Eisner. Mr. Jobs, for example, used the moment to abruptly end negotiations to extend Pixar's lucrative partnership with Disney, under which Disney co-finances and distributes Pixar's popular computer-animated films. That deal has generated hundreds of millions of dollars in profits for Disney at a time when its own animated movies were faltering.

Even a few executives within Disney have felt comfortable carping about their boss. Harvey Weinstein, co-chairman of the company's Miramax Films unit, was recently quoted in Time magazine complaining that, while Mr. Eisner received a bonus for his work last year, he didn't. However, Mr. Weinstein and his brother Bob, also the unit's co-chairman, were paid a collective bonus of about $18 million last year, according to Disney. A Miramax spokesman says Mr. Weinstein was actually referring to outstanding compensation he is owed from 2002.

Messrs. Disney and Gold amplified their criticisms Wednesday. In a forum with the proxy advisory firm Glass, Lewis & Co., Mr. Gold launched bitter attacks against several Disney board members, at one point asserting that Mr. Mitchell "talks out of both sides of his mouth." He tore into Disney's Mr. Iger, also on the board, claiming that "he has failed" in his efforts to revive ABC, and adding: "There's nothing more outrageous than giving Bob Iger a bonus."

But Mr. Disney saved his most searing remarks for Mr. Eisner, whom he helped install as chairman back in 1984, when corporate raiders were circling the company during a fallow period.

Citing "The Wizard of Oz," Mr. Disney said: "Remember when the witch was killed and all the little winged monkeys stood up and started singing 'The witch is dead'? That's what happened in '84, and that's what will happen this time."

--Laurie P. Cohen contributed to this article.

Write to Bruce Orwall at and Peter Grant at