Comcast makes $66 billion bid for Disney

MUMBAI: Cable television powerhouse Comcast Corporation today announced that it has made a proposal to The Walt Disney Company to merge the two companies in a tax-free transaction worth $ 66 billion.

The combination would create of the world's largest by far media behemoth that will have a capitalisation of $142.37 billion. The merged entity would constitute a media monster that would literally dwarf its next closest media rival, Time Warner, which has a market cap of $80.74 billion.

The proposed deal would give Comcast shareholders a 58 per cent stake in the merged company, which Comcast president-CEO Brian Roberts, said would be in a position to "compete vigorously with other entertainment and communications companies, including newly created integrated distribution/content providers."

The offer, couldn't have come at a worse time for Disney chairman Michael Eisner who has enough on his plate fighting a flanking attack by Roy Disney, nephew of founder Walt Disney, who is leading a group of disgruntled shareholders demanding his ouster. Disney's case has been further strengthened by the broadside delivered by Pixar chief Steve Job when his animation company announced it was parting ways with the Little Big Mouse.

In his public offer to acquire Disney, Roberts said Eisner rebuffed an offer made earlier this week and consequently is taking the proposal "directly to you and your board."

The terms of the proposed transaction are as follows:

* Comcast would issue 0.78 of a share of Comcast Class A voting common stock for each Disney share.

* Disney shareholders would receive a premium of over $5 billion, based on yesterday's closing prices, plus full participation in the combination benefits.

* Comcast's proposal values Disney at $66 billion (which includes assumption of $11.9 billion of Disney's net debt), offering a multiple of approximately 14x Disney's 2004 estimated EBITDA.

* Disney shareholders would own 42% of the combined company.

"This is a unique opportunity for all shareholders of Comcast and Disney to create a new leader of the entertainment and communications industry," said Comcast president and CEO Brian L Roberts. "Not only would this merger create significant shareholder value, but it would also position the combined company to compete vigorously with other entertainment and communications companies, including newly created integrated distribution/content providers."

"Our management team has a proven track record of successful integration of our merger partners," said Roberts. "We are prepared, ready and excited to greet the opportunities and challenges the proposed combination presents in order to deliver substantial value to shareholders of the new combined company."

Comcast Cable president Steve Burke added, "I know Disney's businesses very well. And I am confident that when we put those great brands and programming assets together with our distribution, there will be significant opportunities to produce compelling returns for shareholders."

An official release informs that the superior track record of Comcast's management is shown by its success in the acquisition of AT&T Broadband, which was twice the size of Comcast when acquired fifteen months ago. Performance of the merged company has far exceeded initial margin improvement expectations. The combination has resulted in immediate reversal of basic subscriber loss and acceleration of system upgrades, as well as significant launches of new products and services such as video-on-demand and HDTV.

As part of the proposal, Comcast has noted the applicability of the FCC's current program access and program carriage rules to the combined company, which should address potential concerns that could be raised in the regulatory process. Those rules ensure that the combined company will continue to make all of its satellite-delivered national and regional cable networks available on a non-exclusive, non-discriminatory basis and that there will be no discrimination against unaffiliated programming services, all comparable to the undertakings made by News Corp. in its recent acquisition of DirecTV.

The distribution platforms under the combined company would be the Broadband Cable Platform with a total of 21.47 MM subscribers, 39.8 MM homes passed, top 25 market presence and also a High Speed Internet Platform with a subscriber base of 5.28 MM. The TV and radio assets of companies will include the ABC Television Network, 10 local TV stations and 72 radio stations.

Under the entertainment brands of the two companies fall, ESPN, ESPN2, Regional Sports Nets, The Golf Channel and the Outdoor Life Network in the sports networks. Under the children's networks fall the Disney Channel and Toon Disney; while E! Entertainment, ABC Family and Style fall under the entertainment networks of the two companies. Also Studio and Filmed Entertainment Library and Amusement Park Assets add to the infrastructure of the two companies.

Comcast is being advised by Morgan Stanley, JPMorgan, Quadrangle Group and Rohatyn Associates. Davis Polk & Wardwell is the legal advisor to Comcast.

Of course, even if Disney shareholders approve the offer (which is likely to be fiercely resisted by Eisner and his supporters), the deal would face scrutiny from the regulatory authorities.

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