Comcast’s Offer Faces Increasing Skepticism

Comcast Corp. is facing increasing doubt among investors that its bid for Walt Disney Co. can succeed, as the cable giant’s stock languishes and the value of its unsolicited offer remains well below Disney’s market price.

Although it’s early in the battle, even some longtime Comcast shareholders who favor a merger of the two firms say they are skeptical that Comcast will win.

As Comcast shares fell Friday for a third day, “I thought, ‘This thing doesn’t get done,’ ” said Charles Sloan, an analyst at Chicago-based Holland Capital Management, which owns 412,000 Comcast shares.

“I think they’re going to have a very difficult time,” said another big Comcast shareholder who asked not to be named.

Many investors concede that they are reluctant to count out Comcast Chief Executive Brian L. Roberts because of his record in building the company into the nation’s largest cable provider.

Roberts has shown his staying power before: When AT&T; Corp. refused his offer for its cable unit in mid-2001, he worked relentlessly for six months and finally landed his quarry.

But some Comcast shareholders expressed concern that Roberts may not have expected the reactions his latest bid would stir among his own investors -- many of whom see big risks in a merger -- or among Disney investors.

The main problem so far is that Comcast stock has fallen as Disney shares have surged. The trends in the stocks have sharply reduced the value of the cable company’s offer of 0.78 share of Comcast for each Disney share.

Comcast may have gotten more breathing room Friday: The pace of decline in its stock slowed, as it slipped 16 cents to $29.90 on Nasdaq after tumbling $3.87 in all the previous two days.

Disney shares, which jumped a total of $3.92 on Wednesday and Thursday, pulled back $1.08 to $26.92 on the New York Stock Exchange on Friday.

Still, the Comcast offer now values Disney at $23.32 a share -- 13% below Disney’s share price.

Sources in the Comcast camp say they have sent a strong message to investors over the last two days that the company won’t overpay for Disney, to avoid a serious “dilution” of existing Comcast holders’ stakes. Yet many investors expect Roberts to be willing to raise his bid between 10% and 15%.

Even a 15% boost in the stock-swap proposal, however, would lift the bid’s value to just under Disney’s stock price Friday. And if such a boost further antagonizes Comcast holders, driving the stock lower, the bid’s value would decline in tandem.

Moreover, many Disney shareholders argue that the company, as one of the world’s premier consumer franchises, is worth at least $30 a share. Unless Comcast’s stock rises sharply -- or Roberts agrees to sweeten the bid with cash as well as stock -- a 15% increase in the stock-swap offer wouldn’t come close to valuing Disney at $30.

Within the range of what Comcast is believed to be willing to pay, “The deal isn’t going to get done here,” said Alec Cutler, a managing director at money manager Brandywine Asset Management in Wilmington, Del., and an owner of Comcast and Disney shares.

Typically in a takeover situation, the shares of the acquirer initially decline while the target’s shares rise. But the wide gulf between the value of Comcast’s offer and the price of Disney’s shares is unusual, Wall Street veterans said.

If Roberts had hoped that investors immediately would flock to his stock, on a bet that his vision of a combined Comcast and Disney was a blockbuster, he underestimated the anger the bid has generated among some long-time Comcast shareholders, some analysts said.

Craig Moffett, an analyst at investment research firm Sanford C. Bernstein, said many of his investor clients were “ripping mad” about the offer.

The attitude, Moffett said, was that Comcast was on the verge of producing enormous returns from its cable operations after years of building the business. Some investors expected that cash to come back to them in the form of dividends, he said. Buying Disney would be a setback on that path.

“The view is, Roberts had a two-inch putt to generate the cash flow investors all have been waiting for,” Moffett said. “This is like he threw the ball into the rough instead.”

But Roberts’ fans say it was absurd to think that, in the increasingly competitive media sector, he would be willing to sit still with a mature cable firm lacking its own stable of entertainment content.

“Anybody who didn’t think Brian was going to do this was a fool,” said one money manager.

Sources in the Comcast camp insist there is no panic about their investors’ reaction, and that Roberts expected that some investors would pull out of the stock on news of the bid.

“This isn’t something that’s going to be decided in two or three days,” said Christopher Luck, a money manager at First Quadrant in Pasadena, which owns 4 million Comcast shares.

Still, some say that to turn the tide for Roberts, Comcast’s shares must rebound soon, or Disney’s stock price must decline -- or some combination of both. And it isn’t clear to many investors why either of those trends should develop.