Disney Shareholders Content to Wait for Comcast Drama to End

By ANDREW SIMONS

Staff Reporter

Almost two months after Comcast Corp.’s all-stock bid for Walt Disney Co., many investors and analysts remain convinced that the Philadelphia-based cable giant would have to up its offer for the deal to have a chance.

Since the proposed acquisition initially valued at $54 billion was first disclosed on Feb. 10, the value has declined by 14.7 percent, as Comcast’s shares have slipped to $28.96 from $33.93. Disney closed on March 31 at $25.18, about a dollar higher than when Comcast offered 0.78 of one of its shares for each Disney share.

During that period, Burbank-based Disney has been roiled by a 43 percent vote among shareholders against Chief Executive Michael Eisner a campaign begun by former directors Roy Disney and Stanley Gold and later picked up by large institutional shareholders. After the company’s annual meeting last month, the board removed Eisner as chairman (he remains chief executive) and named George Mitchell to that post.

But so far, there is little indication that Eisner’s troubles are impacting the stock price to the point where Comcast’s original deal is attractive enough to be seriously considered by shareholders.

“We’d have to see some pretty substantial weakness,” said David Mantell, cable and media analyst for Loop Capital Markets LLC. “There’s been some weakness in Disney stock, but in my opinion, it would have to get a lot weaker in relation to the bid price.”

Disney shares shot up immediately after the Comcast bid and have since fallen. But so have other big media stocks. Since the offer was made, shares of the large media companies as a group have declined: News Corp. by 7.4 percent, Time Warner Inc. by 4.9 percent and Vivendi Universal SA by 2.6 percent.

“Certainly we’ve seen some weakness in Disney stock, but the whole market is backed up in the whole media space,” said Mantell.

Disney officials declined comment on the company’s stock price.

‘North of $30’

Given the relative quiet on the merger front, investors have been content to let events play out.

“I don’t think it’s screaming at me as a Disney holder to say, ‘Hey maybe they oughta take this deal,'” said Peter Goldman, a portfolio manager at Chicago Asset Management Co., which holds 550,000 Disney shares.

Indeed, the Comcast offer was seen as too low by both the Disney board and some of its major dissident shareholders, chief among them Walt Disney nephew Roy E. Disney.

“They need to get the offer north of $30 a share,” said Goldman. “It’s no magic number, but my owning Disney is essentially based on the library and the good will inherent in the name. And I hear a lot of other people out there, and for some reason 30 has become the magic number. Add a chunk of cash to the deal or make it one share for one share.”

Comcast continues to defend its offer price.

“We believe our proposal represents a full and generous offer for Disney shareholders and our proposal represents a significant premium over Disney’s unaffected share price during any relevant measurement period over the last three years,” said Comcast spokesman Tim Fitzpatrick.

Two weeks ago, Comcast Co-Chief Financial Officer John Alchin told Bloomberg News, “We can’t leave the proposal out there forever.” Earlier, The New York Times reported that Comcast would leave its bid for Disney open for three to six months.

Opinions differ on Disney’s prospects without a marriage to Comcast.

“Shortly after the Comcast bid was announced the stock ran up. But the reason we encouraged investors to hold it for the long term was it represented a core holding of a blue chip company with almost unparalleled brand power,” said Jeffrey S. Thomison, vice president of research at Louisville, Ky.-based J.J.B. Hilliard, W.L. Lyons Inc.

“We think the company is at the early stage of this cyclical recovery,” Thomison said. “Earnings and cash flow are apt to grow significantly in the years ahead.”

Goldman differed in his assessment. “I’m not 100 percent convinced that if the stock really lifts that I’m going to stay put,” said Goldman. “I think I’m much more likely to stay put with the combined company than if Disney just trades naturally toward 30 bucks or something. There’s some cyclical winds right now at Disney’s back. It’s dependent on the terms, what Comcast does in terms of loading themselves up with debt to get this deal done. But I do like the bundle. I’m more on the side that there are real synergies.”

Even analysts like Thomison, who think Disney’s ABC division may be recovering, have reservations.

“That was a part we had pegged as a good turnaround,” said Thomison. “Some of the products and some of the content looked appealing, full of potential. I’ve been disappointed with the ratings. I’ve got some second thoughts there. I’m telling our folks that a turnaround was taking place at ABC. I think that’s going to be even slower going than what it’s been.”