Comcast Withdraws Offer for Disney

Comcast Corp. abandoned its unsolicited $49-billion bid for Walt Disney Co. on Wednesday, handing Disney Chief Executive Michael Eisner a victory as he fights for his survival in the face of widespread shareholder unrest.

The retreat marks a rare defeat for Comcast CEO Brian L. Roberts, a fast-rising star on the media landscape. Roberts viewed Disney as a way to catapult the company that his family built, already the nation’s cable TV leader, into a league alongside multifaceted giants such as News Corp. and Time Warner Inc.

The withdrawal of the bid was just the latest piece of good news for Eisner. It came one day after Disney’s board of directors reaffirmed its support for the executive, who has weathered an investor movement to oust him after 20 years at the company’s helm.

Analysts said the abandonment of Comcast’s bid clearly helped Eisner by removing a huge distraction for Disney. Others, though, suggested that Comcast’s overture offered Eisner a form of protection, given that companies are often reluctant to overhaul their leadership with a possible takeover looming.

Either way, Eisner must now follow through on his promise to deliver consistently solid financial results if he is to appease investors and continue to keep Comcast -- and other suitors -- at bay.

Comcast’s pullout “gives Disney some breathing room in the near term to get its house in order,” said Christopher Dixon, managing director of Gabelli & Co., a major media shareholder. “But the bigger issue is what happens a year from now. If Disney is not showing significant growth, Comcast will be back.”

Disney officials did not return phone calls seeking comment Wednesday.

In some eyes, Roberts’ bold bid for Disney wound up backfiring on him. Not only did he fail to get the prize he was seeking, but some also interpreted Roberts’ desire to expand in a new direction as a sign that he may think his core cable business is peaking -- a perception that could now haunt Comcast.

“It will take some time for Brian to fully regain investors’ trust and to persuade them that his bid for Disney was not born out of a fear that distribution ‘needs’ content,” said Craig Moffett, an analyst who covers Comcast for Sanford C. Bernstein & Co. “The bid has been withdrawn, but its effects will linger.”

Long before Comcast launched its Feb. 11 offer, Roberts had been eyeing Disney’s wide-ranging assets, from Mickey Mouse and ABC to ESPN and hit films such as “Pirates of the Caribbean.” Marrying such content with Comcast’s powerful distribution network, Roberts believed, would give him more leverage in a world dominated by companies that both produce entertainment and have the means to deliver it to people’s living rooms.

But Disney’s board rejected the stock-swap offer as too low. Meanwhile, skeptical Comcast investors drove down the price of the Philadelphia company’s shares, undermining its ability to offer Disney stockholders a premium for their shares.

The gap between Comcast’s share price and Disney’s narrowed on Monday to its closest margin since the bid was announced, theoretically making Comcast’s offer more feasible. Still, Roberts backed off.

“You’ve got to know when to walk away,” he said.

Some sources close to the cable company have said that Roberts was misled into believing that Disney was open to its offer. Disney sources have confirmed that representatives of Disney director George J. Mitchell had discussions with intermediaries for Comcast. But they denied that Mitchell encouraged Comcast’s bid.

People close to Comcast suggested that the company would be leery of approaching Disney again without a clear invitation.

To convince shareholders Wednesday that it was moving on, Comcast reinstated a plan to buy back $1 billion of its stock. Analysts, though, were looking for even more.

“Some investors were surprised they didn’t increase the size of the share repurchase program,” Moffett said. “That’s led to further speculation that they are hording cash for another deal.”

Indeed, Comcast is expected to at least kick the tires on Adelphia Communications Corp., the nation’s sixth-largest cable provider, which put itself up for sale last week. It also may take a look at Metro-Goldwyn-Mayer Inc., the Hollywood studio that’s in play.

For all that, though, some investors weren’t convinced that Roberts had washed his hands of Disney -- sentiments reinforced by the CEO, who stopped short Wednesday of ruling out a future run for the Burbank-based entertainment company.

That might leave a bad taste for some Comcast shareholders who have wanted the company to return its focus squarely to cable. “Comcast left the door ajar” for another Disney bid, Moffett said. “Investors were disappointed that Comcast didn’t kill it more definitively.”

As for Eisner, he has been under near-relentless fire since late last year. That’s when former Walt Disney directors Roy E. Disney and Stanley P. Gold abruptly resigned from the board and launched a campaign to oust the long-serving chairman and CEO, accusing him of mismanaging the company.

The campaign continued to gain steam as some of the nation’s largest pension funds voiced their disappointment with the company’s long-term performance. Some even called for Eisner to leave Disney.

The revolt led to a 45% vote against Eisner’s reelection at the company’s annual shareholders’ meeting in March. In the wake of the vote, Disney’s board stripped Eisner of his chairman’s title and gave the post to Mitchell.

Another blow came recently as a result of disappointing box-office returns from the big-budget epic “The Alamo” and the animated film “Home on the Range.” Analysts calculate that Disney could be forced to take a write-off of more than $100 million on the two movies.

That was followed by a management shakeup at Disney’s long-troubled ABC Television, which further shook confidence on Wall Street.

The criticism continued Wednesday when Disney and Gold, the dissident former directors, blasted the company’s board for endorsing Eisner after its two-day retreat. “The board this week has demonstrated that this is truly a ‘Do Nothing Eisner Board,’ ” their statement said.

Despite the weeks and months of glum news, Disney may be turning a corner, some say. Many analysts believe that Disney is poised to meet its target of achieving at least a 40% gain in earnings from continuing operations this year, thanks in part to the economic recovery that has led to a rebound at its theme parks.

Disney’s sunny outlook was a factor in Comcast’s decision to withdraw its bid Wednesday, according to sources close to Roberts. They said that despite Disney’s troubles, its positive financial performance would probably keep the stock at a level that would prevent the takeover bid from succeeding.

Sources said Comcast’s board gave Roberts the go-ahead to withdraw the bid on Tuesday. But one person close to Roberts said the Comcast chief would have reconsidered pulling the offer had the news coming out of the two-day Disney board retreat been different.

Before Disney’s directors reaffirmed their support for Eisner, some at Comcast had held out a glimmer of hope that they would be open to exploratory discussions as part of the company’s succession planning. Eisner’s contract as CEO expires in 2006, and Disney’s lack of a clear succession plan has become a major issue for the board.

Separately Wednesday, Comcast released its first-quarter financial results. The company earned $65 million, or 3 cents a share, reversing a net loss of $297 million, or 13 cents a share, a year earlier. Revenue rose to $4.91 billion from $4.47 billion.

At least one analyst applauded the numbers as “exceptionally strong.”

Despite anticipated price wars with phone and satellite TV companies, Comcast added basic cable and high-speed Internet subscribers. It also registered higher revenue per household, on average -- a favorable indication that it did not have to offer discounts to keep growing.

Comcast’s stock rose nearly 6% on Wednesday before settling back to $30.20 on Nasdaq, up 23 cents. Disney shares fell 23 cents to $23.95 on the New York Stock Exchange.

Times staff writers Walter Hamilton and Richard Verrier contributed to this report.