Investors Appear to Be Girding for Long Fight

One day after Walt Disney Co. rejected Comcast Corp.’s unsolicited takeover offer, both companies’ investors appeared to be following the leads of their respective managements -- and digging in for a potentially long battle.

Disney’s shares dipped as low as $26.49 on Tuesday, then rallied to close off slightly, down 2 cents to $26.90 on the New York Stock Exchange. The stock’s resilience, in continued heavy trading, suggested that many on Wall Street believed the company was worth at least its current price, with or without a suitor.

Sources close to the Comcast camp said they might have misjudged investors’ sentiment toward Disney, as the stock has held well above the value of Comcast’s week-old offer.

But there was positive news for Comcast Chief Executive Brian L. Roberts as well: Comcast shares rose for the first time in four trading sessions, gaining 85 cents to $30.75 on Nasdaq.

Comcast’s insistence that its $50-billion stock-swap offer for Disney is generous -- and that it won’t raise the bid -- heartened many of its investors who have been fearful that the cable giant might overspend for Disney.

“I’m impressed with the fact that they’re not going to negotiate against themselves,” said Morris Mark, head of Mark Asset Management in New York and a supporter of the bid.

Still, many investors on both sides believe Comcast eventually will raise its offer modestly, most likely by adding a cash component to sweeten the pot.

For the moment, the day-to-day action in the stocks is likely to be the main focus of both the Comcast and Disney camps, because the market’s judgment is crucial in determining which side gains the advantage.

Disney arguably has the edge for now: Although Comcast’s stock rose Tuesday, the value of its offer -- 0.78 share for each Disney share -- was worth $23.99 a share to Disney holders.

That was 10.8% below the media titan’s closing stock price.

The gap between the market’s assessment of Disney’s worth and the value of the Comcast offer was specifically cited by Disney’s board Monday in its statement rejecting the bid.

Comcast countered that its bid reflected “a full and generous valuation based on Disney’s prospects and performance over a long period of time.” Disney had been trading at less than $25 for most of the last three years. Before Comcast stock fell last week, its bid was worth about $26.50 per Disney share.

The Comcast camp remained adamant that it wouldn’t boost its offer.

“We have the only bid on the table, and it’s the highest bid on the table,” one Comcast source said Tuesday. “Disney would be nice to have, but we don’t have to have it. We can wait forever.”

Many analysts said it wasn’t clear whether time was more on Comcast’s side or on Disney’s.

Some entertainment executives said Comcast’s bid had highlighted for investors the firm’s strategic shortcomings -- mainly, being short of entertainment content for its cable system, the nation’s largest.

“If Brian walks away, he’ll be a hero in the short term because he’s shown deal discipline,” an executive with one media rival said. “But he’s squeezed because he’s said publicly he’s strategically incomplete.”

That could give some investors pause in bidding up Comcast’s stock price.

At the same time, Disney’s surprisingly strong fiscal first-quarter earnings report, issued last week after Comcast made its bid, gave ammunition to Chairman Michael Eisner in his argument that the company was rebounding after years of woes -- and that the business was worth significantly more than Comcast offered to pay.

“Disney went out Wednesday and Thursday and told investors, ‘We’ve turned the company around,’ ” said one person from the Comcast camp.

“We underestimated that the world would believe the company.”

On Tuesday, Disney executives spent the day talking up their acquisition of the Muppet characters from Jim Henson Co., presenting it as an example of the firm’s focus on building its entertainment content.

Jeffrey Logsdon, a veteran media analyst with Harris Nesbitt Gerard in Boston, said Disney was clearly on the offensive, trying to convince shareholders that the stock was worth at least its current price.

Disney must “articulate its strategy, as it’s been doing in a much more visible fashion, and to show improvements in areas like its ABC network that have tremendous upside if successful,” Logsdon said.

He said that over the last 15 years, Disney had never made the kind of full-court press at one of its annual investor and analyst meetings that it did last week at a gathering in Orlando, Fla.

“There was a much higher level of accessibility to the higher levels of management,” Logsdon said. He said it also was the first time he could recall that Disney board members were front and center at such a meeting. Director and former U.S. Sen. George Mitchell, for example, had lunch with investors and analysts to discuss Disney’s corporate governance issues.

Still, many Disney investors said they could be persuaded to sell -- at a higher price.

Some said the key was for Comcast to offer a premium in the form of cash to supplement the stock-swap offer and raise the total value of the bid to $30 a share or higher.

“They have to come up with cash or the deal is over,” said Robert Olstein, who manages the Olstein Financial Alert mutual fund in Purchase, N.Y., and owns about 1 million Disney shares.

Mario Gabelli, head of Gabelli Asset Management in New York and an owner of Comcast and Disney shares, said Comcast shareholders would prefer that management add some cash to the offer, as opposed to giving more stock to Disney investors. Raising the stock portion of the offer would further dilute the ownership stakes of Comcast holders.

“Mechanically, the best thing for Comcast would be to put up some cash,” Gabelli said.

Times staff writers Claudia Eller and Richard Verrier contributed to this report.