Less than a week after its efforts to kick at Disney’s tires were rebuffed, cable television giant Comcast has announced a blockbuster $66 billion offer to merge with the entertainment powerhouse.
Comcast , the largest cable TV and high-speed ISP in the U.S., said a marriage with the Walt Disney Company would “create one of the world’s leading entertainment and communications companies with an unparalleled distribution platform and an extraordinary portfolio of content assets.”
The hostile takeover bid, announced Wednesday morning alongside an open letter from Comcast boss Brian Roberts to Disney’s embattled chief executive Michael Eisner, includes an offer of 0.78 Comcast shares for each Disney share. Including the assumption of some $12 billion of Disney’s debt, the transaction is valued in the range of $66 billion.
At the core of the proposed merger are the possibilities for broadband delivery of entertainment content with a high brand value. Disney dominates the market for animated movies and its ABC network, ABC Family and ESPN cable outlets enjoy worldwide popularity.
Comcast pointed to its dominance in the broadband market as a key ingredient to make a Disney merger successful. In a statement, the company said the combination would create an entertainment and communications behemoth with a presence in the top 25 markets in the U.S. and would “propel broadband forward.”
In his open letter, Comcast’s Roberts again highlighted his company’s broadband presence. “In addition to serving over 21 million cable subscribers, Comcast is also the country’s largest high speed internet service provider with over 5 million subscribers. As you have expressed on several occasions, one of Disney’s top priorities involves the aggressive pursuit of technological innovation that enhances how Disney’s content is created and delivered.”
“I am writing following our conversation earlier this week in which I proposed that we enter into discussions to merge Disney and Comcast to create a premier entertainment and communications company. It is unfortunate that you are not willing to do so. Given this, the only way for us to proceed is to make a public proposal directly to you and your Board.”
“We believe this combination helps accelerate the realization of that goal-whether through existing distribution channels and technologies such as video-on-demand and broadband video streaming or through emerging technologies still in development-to the benefit of all our shareholders, customers and employees,” Roberts declared.
A deal of this magnitude would require regulator clearance and Comcast said it was open to inviting Disney executives participate in the management of the combined entity. To quell fears about regulatory approval, the company said its successful purchase of AT&T’s cable business was proof of its ability to close on big transactions.
AT&T’s cable unit was twice the size of Comcast and after the merger, Roberts boasted that the company had “far exceeded” expectations.
The immediate ramifications of Comcast’s offer were swift. In a research note, Merrill Lynch described Comcast and Disney as “perfect merger partners,” adding that Comcast’s long history of deal execution has been “completely extraordinary in terms of shareholder value creation.”
In a research note Wednesday, Merrill Lynch media analyst Jessica Reif said Comcast is clearly targeting the opportunity created by Disney shareholder unhappiness and the public criticisms by outgoing board members against Eisner, who is reportedly on the hot seat over his management of the company. “In addition, Disney has several large under-performing assets that are ripe for a turnaround, including the ABC TV Network and ABC Family…The rationale behind the merger is identical to the News Corp. – DirecTV combination, which is a combination of content and technology. In this case, Comcast’s broadband technology is superior to satellite, creating even more opportunities.”
Reif noted that Disney’s strengths in sports, kids and theatrical films program production are all crucial areas for the rollout of new broadband products, including HD (high definition television), VOD (video on demand), SVOD (subscription video on demand) and HSD (high speed data).
Research firm SG Cowen echoed those sentiments, noting that the cable networks, particularly ESPN and the Disney Channel were the “real jewels” in Disney’s portfolio. “CEO Eisner appears to be playing a ‘just say no’ defense, however this may be a difficult strategy for he and the DIS board to take. We believe [Comcast’s] bid could put Disney in play, though it is not clear who else could put in a viable bid, thus Comcast is the clear front-runner.”
On the flip side, the Center for Digital Democracy, a political lobbying organization, has voiced strong opposition to the proposed deal. In a statement, the Center’s executive director Jeff Chester called on the U.S. government to reject the proposed “mega-media monster monopoly.”
“It’s clear that Brian Roberts knows no limits to his media ownership ambitions, having already swallowed AT&T Broadband (which in turn had gobbled up both TCI and MediaOne). More importantly, Roberts and Comcast fail to appreciate that such heightened media consolidation in cable, broadcast, and online distribution and content is a threat to American democracy,” Chester argued.
Chester also argued that a Comcast-Disney combine would permit one entity to dominate cable system distribution in the largest markets in the US (8 out of 10 top markets); control a broadcast TV network and the dozens–if not hundreds–of digital channels from its owned-and-affiliated stations; own cable content including ESPN, Toon, Disney, Golf, E, and TV One; as well as remain the major broadband ISP.
“Given Microsoft’s investment in Comcast and its new relation with Disney, there are also implications for every desktop and set-top. Comcast has opposed any federal policy that would ensure that the broadband Internet operates on an open and nondiscriminatory basis,” he said.
