Comcast Sets Limits as Disney Shares Climb

One day after Comcast Corp. ripped the cord on its unsolicited $51-billion bid for Walt Disney Co., Comcast Chief Executive Brian L. Roberts and top lieutenant Stephen B. Burke flew West to meet with Disney and Comcast investors and deliver a simple message: They’ll walk away before they’ll overpay.

“What we’re not going to do is go crazy to get this,” said one person close to the Comcast camp, describing a key point they would make to investors. Roberts and Burke were in Denver on Thursday and were expected to call on money managers in Los Angeles today.

Yet Wall Street continued to bid up Disney shares, driving the price as high as $28.41 on Thursday, the best level since mid-2001. It closed at $28, up 40 cents on the New York Stock Exchange, after soaring $3.52 on Wednesday.

Disney shares now are trading at a 19% premium to the value of Comcast’s stock-swap offer -- seemingly a sure sign that investors expect Comcast to raise its bid, or to be topped by another buyer.

Some Disney shareholders said the stock was rising for another reason: They said Wall Street was favorably reevaluating the company’s assets and the level of earnings they might produce in coming years, with or without a significant restructuring move by Disney management.

The Comcast offer was “a value-awakening event” for Disney, said Robert Olstein, manager of the Olstein Financial Alert stock mutual fund in Purchase, N.Y., which owns about 1 million Disney shares.

Olstein said his analysis of Disney’s assets and earnings power gave the company a value of $31 to $32 a share.

The range of $30 to $33 was widely used by other money managers and analysts as well on Wednesday and Thursday.

The Comcast bid, however, valued Disney at $26.47 a share as of Tuesday. The value of the offer -- 0.78 share of Comcast for each Disney share -- has declined as Comcast’s stock has dropped since the bid was made. Comcast slid $2.70 on Wednesday and $1.17 on Thursday, to close at $30.06 on Nasdaq.

At Comcast’s stock price Thursday, its offer valued Disney at $23.45 a share. That isn’t enough for Olstein, among others.

“I’m not sure Disney needs this deal,” he said. “What do they get out of it?”

Roberts declined to comment Thursday. But a source close to the Comcast camp said it was warning against making the assumption that Comcast was prepared to raise the value of its offer to near $30 a share.

Roberts’ argument was that Disney stock already had run up sharply, rising 43% last year despite questions about the long-term profitability of the company’s broadcasting and theme-park units, the source said.

“Disney shareholders are getting ahead of themselves,” the source said.

Still, many Wall Street pros said Roberts’ history of acquisitions suggests that he would be willing to sweeten the pot by 10% to 15% from the initial offer.

Wallace Weitz, who heads money management firm Wallace Weitz & Co. in Omaha and is a longtime Comcast shareowner, said he expected Roberts to raise his offer within that range.

“But I would hate to see it raised any more than that,” Weitz said. The more stock Comcast offers to Disney investors, the greater the “dilution” suffered by existing Comcast shareholders, he noted.

Weitz, who owned about 12 million Comcast shares at year’s end, said he viewed Roberts’ bid as good for Comcast and Disney in the long run. “It’s a terrific move, and I think he has a reasonable chance of pulling it off,” he said.

Weitz and others noted that if Roberts can convince Wall Street of the deal’s merits, and Comcast stock begins to rebound, the value of the bid to Disney investors would automatically rise.

Some Disney shareholders said that even if Disney rejected Comcast’s proposal, it was unlikely that the Burbank media giant’s stock would tumble to levels before the bid was made.

There is a chance that another bidder could emerge for Disney, though many Wall Street pros said that seemed unlikely given the money it would take.

Beyond the possibility of a higher takeover offer, more investors now are focusing on Disney’s turnaround potential, said Sarat Sethi, a principal and portfolio manager at Douglas Lane & Associates in New York, which owns more than 700,000 Disney shares.

“I’m not sure I want to see Disney be sold,” Sethi said. “The company has gotten some great traction in the last few months” in terms of an earnings recovery, he said. “I think the assets are very valuable. We are climbing up the mountain at this point.”

Despite record sales of $27.1 billion in fiscal 2003, Disney’s net earnings of $1.27 billion were far below the $1.9 billion it earned in 1997. That leaves plenty of room for improvement, many Disney fans say.

There also is the potential for Disney Chairman Michael Eisner to launch a major restructuring involving the sale of some assets, and perhaps payment of a large one-time cash dividend to shareholders, some analysts and money managers said.

Disney reportedly has engaged investment banking firms Goldman Sachs & Co. and Bear, Stearns & Co. to counter Comcast. Money managers said bankers naturally are eager to propose numerous possible steps for Disney, because of the rich fee income that could be involved in any transaction or series of transactions.

“Everybody is looking for a horse to ride in this battle,” said one Wall Street takeover lawyer.

Some Disney investors said the stock’s gains over the last two days also reflected hopes that if Disney survives as an independent company, it would be without Eisner at the helm.

“There’s been a great frustration factor with this company for years,” said Steven Cohen, chief investment officer at Kellner DiLeo Cohen & Co. in New York, a Disney shareholder. With new management, “You could get excited about this thing again.”