Origins of the Takeover Proposal

Brian L. Roberts walked out of the phone booth, dumbfounded.

Holed up with advisors at the Westin hotel in Philadelphia for seven hours, the Comcast Corp. chief executive had been counseled to waste no time in giving Michael Eisner, chairman of Walt Disney Co., the news: The country’s biggest cable company wanted to team up with the venerable entertainment empire.

Preparing for the monumental call, the Comcast team, over cold cuts and Caesar salad, had kicked around various scenarios, expecting Eisner to suggest a face-to-face meeting or tell Roberts he would discuss the matter with the Disney board. As he dialed, Roberts figured Eisner would, at the least, need a few minutes to think about it.

Instead, “he blew me off,” is essentially how Roberts described Eisner’s reaction, according to people on the team.

“We didn’t expect him to dismiss it out of hand,” said one advisor.

That moment, a week ago today, set the stage for what is shaping up to be one of the most sensational takeover tries in entertainment industry history.

After getting the cold shoulder from Eisner, Roberts and his team spent 13 hours hashing out details Tuesday at the Manhattan law offices of Davis Polk & Wardwell.

Price had been debated since the Comcast team started thinking seriously about Disney before Christmas. “None of us felt this company was worth a premium of 20% or 30%,” said one person on the team. “Besides, we felt we were bidding against nobody.”

Early Wednesday, as Disney hosted a conference for analysts and investors in Orlando, Fla., a formal letter went out. It said Comcast would pay about a 10% premium over the Disney share price that day, or some $51 billion -- and assume its $12 billion in debt. (As of Friday’s close of trading, the deal was valued at $49 billion.)

Roberts reported earnings to investors, held a news conference to explain the Disney bid and placed what people close to him described as courtesy phone calls to some 150 power brokers in the media, politics and finance. On the list: Federal Communications Commission Chairman Michael K. Powell; Microsoft Corp. Chairman Bill Gates; Viacom Inc. CEO Sumner Redstone; InterActiveCorp’s Barry Diller and New York Mayor Michael R. Bloomberg.

By Friday, Roberts and his team had met with Comcast and Disney shareholders in New York, Boston, Denver and Los Angeles.

David Cohen, who is in charge of regulatory and political matters at Comcast, paid a visit to L.A. Mayor James K. Hahn on Friday to underscore Comcast’s understanding of Disney’s importance to the city. “We wanted to reach out to people right away,” said a person close to the Philadelphia-based cable giant.

At Comcast, the daring idea of bidding for Disney was set in motion last summer, when Comcast was invited to enter the auction for Vivendi Universal’s entertainment assets.

After buying cable leader AT&T; Broadband in late 2002, Comcast had become the biggest pipeline for carrying programming, serving 21.5 million cable TV subscribers. But it controlled little of the content needed to drive the digital services that are the growth engines of the cable business.

Comcast retreated without making a bid, concluding that General Electric Corp.’s NBC -- the ultimate winner of the auction -- had the upper hand. The exercise, however, “got us thinking and more in the mood to do something,” said one person in the Comcast camp.

By mid-December, Roberts had assembled advisors at the Four Seasons in Philadelphia to discuss how Comcast might make a move into content. At the meeting were Ralph Roberts, Comcast’s co-founder and the CEO’s father, and Stephen Burke, a former high-ranking Disney executive who knows Eisner well. Also in the room were Dennis Hersch, a partner at Davis Polk; Steve Rattner, Comcast’s longtime investment banker; Paul Taubman from Morgan Stanley; and Roberts’ two co-chief financial officers, Larry Smith and John Alchin.

Options were put on the table, only to be swept off. Viacom wasn’t a feasible takeover target because Redstone controlled the stock. Time Warner Inc., the world’s largest entertainment company, was too big a bite; Metro-Goldwyn-Mayer Inc. was too meager. DreamWorks SKG wasn’t even mentioned.

“Disney was the obvious target,” said one person at the meeting. The fact that Burke had been a rising star at Disney and knew the culture firsthand was an ace in the hole. What’s more, the 61-year-old Eisner was viewed as vulnerable. Two dissident shareholders, including Walt Disney’s nephew Roy E. Disney, had resigned from the board and were waging a campaign to unseat Eisner, blaming him for killing the company’s creative spirit and driving away top talent.

“Roy Disney’s fight was a little bit of a wake-up call,” said one person close to Comcast.

The Comcast board was “very enthusiastic” when Roberts raised the idea conceptually of a major acquisition at the December board meeting, sources said.

Still, Roberts himself was unconvinced about moving in on Disney. “All of us went back and forth on any given day,” said one person on the team. “Steve [Burke] was not pounding the table saying we should do it. Brian was very conflicted.”

Roberts finally made his decision at a meeting in early January.

“It was a deja vu moment,” said one person at the meeting, referring to the unsolicited offer for AT&T;’s cable systems hatched by the same team two years earlier..

By late January, J.P. Morgan Chase’s Robert Kindler, who had worked on the AT&T; deal, was brought on board. There were more strategy sessions, and an amusing interlude: Disney set its annual meeting in March for, of all places, Philadelphia. “We had a good laugh,” one person close to Roberts recalled.

The Comcast plan was to make an offer in late February. And just two days before Rob-erts made the phone call to Eisner, it seemed he wasn’t in any rush: He was playing in the AT&T; Pebble Beach National Pro-Am with professional Charles Howell II, ahead of such celebrities as Ray Romano, Kevin Costner and CBS Televi-sion chief Leslie Moonves.

In fact, throughout the round, Roberts (who has an 8 handicap) was e-mailing advisors on his Blackberry. Last Monday, in Philadelphia, the takeover plan was accelerated. The team decided that shareholders would feel ripped off if Comcast, set to release its quarterly report and year-ahead forecast Wednesday, projected heady growth and the stock bounced up -- just in time for an announcement about the bid for Disney.