Walt Disney Co. was a forlorn kingdom the other week, with sparse attendance at its parks, a 24 percent decline in its stock price and the sell-off by a once-staunch shareholder in the aftermath of terrorist attacks.
Disney’s world lurched when wealthy Texan Sid R. Bass sold most of his shares at a steep discount to address a liquidity need. Bass, who helped install Michael Eisner as chairman in 1984, never took a director’s seat but said in a rare 1995 interview that he served as Eisner’s “sounding board.” Investors were shocked by the news that Bass and two family members sold 135 million shares on Sept. 20.
Disney responded quickly, spending $750 million to buy 50 million of the shares, and the stock price recovered slightly on Friday, closing at $17.87. But the unnerving episode prompted some analysts to ask whether Disney would proceed with a $5.3 billion agreement to buy Fox Family Worldwide from News Corp. and Haim Saban. The deal, announced in July, would cost $3 billion in cash and the assumption of $2.3 billion in debt.
“I think the prudent thing is to renegotiate the price, given the change in the value of everything,” said Jeffrey Logsdon, an analyst for Gerard Klauer Mattison & Co.
Disney said it expects to proceed with the Fox Family acquisition. “We plan to close the deal as contemplated in November, on the terms to which we originally agreed,” said spokeswoman Chris Castro.
Yet Standard & Poor’s cited the pending Fox Family purchase as a factor when it placed Disney on its CreditWatch this week with negative implications. Disney might have difficulty reducing its leverage to the 2 times level that merits an “A” rating, Standard & Poor’s said.
The Fox Family deal has been dogged by questions from the outset, owing to the difficulty of programming a general entertainment network that is punctuated by a religious news and talk program called “The 700 Club.” Disney will inherit a predecessor company’s obligation to air the program, which is often hosted by Christian Coalition founder Pat Robertson.
Eisner, after a July news conference with television critics, said “The 700 Club” would continue on the cable channel, to be renamed ABC Family. Produced by the Christian Broadcasting Network Inc., the hourlong program airs on weekdays at 9:30 a.m. and 11 p.m.
If “The 700 Club” looked worrisome in July, the show became a full-blown migraine in September. Two days after the terrorists’ attacks, Robertson welcomed conservative evangelist Jerry Falwell as a “dear friend of ours” and said he “totally” concurred with Falwell’s contention that feminists, abortionists, gays and lesbians bore some responsibility for terrorist attacks on America. “God will not be mocked,” Falwell said.
The public recoiled. At the White House, a spokesman said President Bush did not share that view. In addition to the Family channel, Disney gains a 76 percent ownership stake in Fox Kids Europe, which has 24 million subscribers, a Latin American operation and Saban’s library of children’s programming, which includes “Mighty Morphin Power Rangers.”
Analysts praised the deal in July, although some such as Lehman Brothers’ Stuart Linde noted that the price was at the “high end” of recent cable-TV acquisitions.
By August, however, some industry analysts lowered their projections for ad spending, and on Sept. 11, terrorists jolted the U.S. economy.
Disney said it couldn’t estimate its short-term losses at its theme parks, resorts and other businesses, but Eisner expressed confidence in the long-term outlook.
The Disney chairman may be right.
Kathryn Harris is a columnist for Bloomberg News.
