Disney Board Rejects Comcast Bid

Times Staff Writers

Walt Disney Co. directors Monday unanimously rejected a $49-billion takeover bid from cable giant Comcast Corp. and gave a vote of confidence to Chairman Michael Eisner, setting the stage for what could be a long siege for the legendary entertainment company.

After an afternoon meeting of more than two hours at the company’s Burbank headquarters, Disney’s board fired back for the first time since Comcast made its offer public Wednesday, saying the bid has been inadequate “from the very first day.”

The board did say that although it would consider “any legitimate proposal” to buy the company and the “appropriate premium” to pay for Disney, it simultaneously sent a clear message that it also backs Eisner, who is facing the biggest challenge to his 20-year reign at the company.

For weeks the chief executive has been at the center of a storm of criticism over his management amid problems at the company’s ABC network and in its theme parks and its recent breakup with Pixar Animation Studios, which made hits such as “Finding Nemo” and the “Toy Story” movies.


But the Disney board Monday said that it had “confidence in the business, financial and creative direction of Disney under the leadership of Michael Eisner and his management team” and that it believed the “company’s current structure and strategy will maximize shareholder value.”

Most observers believe Comcast’s bid was only an opening salvo and have widely expected the Philadelphia-based company to up the ante by raising the price of its stock-swap offer, possibly sweetening it with some cash.

“This is the just first round of a 12-round heavyweight fight,” said one observer close to the battle.

Comcast responded to the rejection with a statement reiterating that its proposal reflects a “full and generous valuation” based on Disney’s long-term prospects, as well as a steep premium over the levels the company’s shares have traded at during the last three years.

“We maintain the belief that our merger proposal represents a sound and compelling proposition for both sets of shareholders,” Comcast said, without disclosing its next move.

The rejection came as no surprise given that Comcast’s offer now valued Disney at $3.60 a share less than its current trading price.

“There was no doubt that this would be the first response,” said Tom Wolzien, a media analyst with Sanford C. Bernstein in New York. “The board didn’t have any other option. You can’t very well say, ‘I’m going to sell my company for $3 a share less than it is worth.’ ”

The events unfolded early Sunday when directors were sent, via messenger, a packet of analyses by financial advisors Goldman, Sachs & Co. and Bear, Stearns & Co.


Some directors gathered at 2:30 p.m. in the board room in the Team Disney building on the company’s Burbank studio lot. Others were patched in from New York on video conferencing phones. After presentations from the financial advisors, the vote was taken.

Sources close to the board described the meeting as unemotional and businesslike, with Comcast’s bid the only issue. The decision to reject the offer was a “a no-brainer,” said a source close to the board. “It didn’t take a rocket scientist to figure this out.”

The board did not discuss whether it should undertake defensive strategies to ward off a hostile takeover from Comcast or anyone else, sources said.

The board also wanted to send a message of support for Eisner. The chairman’s stewardship of Disney has come under heavy fire of late not only from Comcast but from Pixar Chief Executive Steve Jobs and former directors Stanley P. Gold and Roy E. Disney, the nephew of Walt Disney.


Although Wall Street had been expecting Disney to reject Comcast’s offer, it came sooner than expected.

Many believed Disney that had nothing to lose by waiting and that it could better time its announcement to come out on the eve of Disney’s annual meeting March 3 in Philadelphia.

By with the early rejection, Comcast has a chance to steal Disney’s thunder with a higher bid before the meeting, possibly influencing a shareholder vote on retaining Eisner as a director.

Gold and Roy Disney are lobbying shareholders to refrain from voting for Eisner as a referendum on his management. The two men found an unexpected ally last week in the influential Institutional Shareholder Services, the biggest U.S. advisor to fund managers on proxy votes. The group also urged that votes for Eisner be withheld.


Comcast Chief Executive Brian L. Roberts already upstaged the Disney chairman last week.

After calling Eisner on Feb. 9 with his proposal and being rebuffed, Roberts made his offer public Wednesday, just as Eisner was preparing a presentation to analysts and investors at a special gathering at Walt Disney World in Florida.

In Disney, Comcast is bidding for one of the entertainment industry’s premier names and whose assets include Mickey Mouse, Disneyland, the ABC network, ESPN and classic films such as “The Lion King.” Comcast hopes to leverage Disney’s content to build digital entertainment and video-on-demand systems.

Disney stock surged in the first two trading days after Comcast’s announcement last week, as many investors and traders bet that Comcast would raise its offer, another bidder would surface or Disney would take steps to boost its stock value.


Disney shares, which closed at $24.08 on Tuesday before the bid was made, jumped 16% to $28 by Thursday’s market close. The shares pulled back $1.08 to $26.92 on the New York Stock Exchange on Friday.

Meanwhile, some Comcast investors reacted negatively to the merger idea, pushing Comcast shares down three straight sessions. At Friday’s close of $29.90 on Nasdaq, Comcast stock had dropped nearly 12% from its price immediately before the offer was made.

As Comcast stock fell, so did the value of its stock-swap offer. At Comcast’s Friday closing price of $29.90, the offer to exchange 0.78 Comcast share for each Disney share valued Disney at $23.32 a share, or 13% below Disney’s closing price that day. Comcast would also inherit $12 billion of Disney’s debt.

Some Wall Street analysts and money managers have argued that Disney is worth at least $30 a share. Many analysts believe Comcast is prepared to raise its offer by 10% to 15%.


But it’s uncertain whether it will be able to do so without diluting its stock and further alienating its own investors, who so far have thrown cold water on the prospect of a Comcast-Disney pairing.

Analysts say it’s difficult to predict whether anyone else might emerge as a rival bidder. Although there are no obvious suitors beyond Comcast, they said that anything can happen with a company as well known as Disney at stake.

“When there’s something as tantalizing as Disney that’s being dangled out there,” Wolzien said, “who knows who gets bit by the Hollywood virus?”



Times staff writer Sallie Hofmeister contributed to this report.