Comcast Drops Disney Offer
George Mannes
04/28/04 - 11:29 AM EDT
Updated from 7:46 a.m. EDT
Bowing to the market's wishes,
Comcast
threw in the towel on its hostile
bid for media titan
Disney .
The news came as Comcast posted solid
first-quarter numbers and said it would resume a $1
billion stock buyback plan. Meanwhile, Disney's board
publicly reaffirmed its faith in CEO Michael Eisner
Tuesday night. Comcast shares surged in early action before giving back those gains; they were unchanged around midday. Disney's shares dropped 2%.
Comcast cited Disney's lack of interest in the
prospect of a merger, though it easily could have
noted investors' obvious dissatisfaction with the
unsolicited $48 billion offer. Comcast shares skidded
sharply in February when the company announced its
plans, and Disney stock continued to trade about $2
above the value of Comcast's all-stock offer
throughout the spring.
"We have always been disciplined in our approach
to acquisitions," said CEO Brian Roberts. "Being
disciplined means knowing when it is time to walk
away. That time is now."
"It has become clear that there is no interest on
the part of Disney's management and board in putting
Comcast and Disney together," Roberts continued. "As a
result, we have withdrawn our offer."
The withdrawal now puts the spotlight on another
potential deal facing the cable industry, the possible
sale of
Adelphia Communications, the nation's
fifth-largest operator of cable systems.
"I suspect we'll look at those" Adelphia
systems, Roberts told analysts on a conference call
Wednesday morning, though he said the Adelphia
opportunity did not factor into the decision to
withdraw the Disney offer. He noted that several
Adelphia properties fit nicely with Comcast's current
operations, and suggested Comcast could acquire those
systems, or swap with, or partner with, whoever might
purchase them from Adelphia.
Given Comcast's size, said Roberts, "We don't
have to make any acquisitions."
Comcast launched its hostile offer for Disney
after its friendly overtures were rebuffed by Eisner.
While the offer never got off the ground with board
members, it helped accent growing dissatisfaction with
Disney management and presaged the stripping of
Eisner's chairman title.
The move came as Comcast posted 21% operating cash
flow growth in its core cable operations. Its results
were broadly in line with expectations, and the
company reaffirmed guidance for 2004.
Comcast Numbers
Though Comcast's earnings per share based on
generally accepted accounting principles came up short
against the analysts' consensus, investors have
traditionally paid more attention to revenue and cash
flow results for Comcast's cable system operations.
Comcast, which has 21.5 million basic subscribers, is
the nation's largest cable operator.
Comcast reported net income of
$65 million, or 3
cents per share, for the first quarter ended March 31.
The Thomson First Call consensus was for a 7-cent
gain, though expectations varied from a one-cent loss
to a 17-cent gain. In the first quarter of 2003,
Comcast reported a loss of $355 million, or 16 cents
per share, excluding the results of the home shopping
channel QVC. (Comcast sold its majority stake in QVC
to fellow owner
Liberty Media last September.)
Companywide revenue for the quarter amounted to
$4.91 billion, ahead of the $4.84 billion First Call
consensus. Operating cash flow of $1.73 billion
matched up to the $1.74 billion consensus.
At the cable operations, revenue grew 10% to $4.65
billion, in the range of forecasts such as Banc of
America's $4.66 billion and Credit Suisse First
Boston's $4.58 billion.
Operating cash flow for the cable operations, or
earnings before interest, taxes, depreciation and
amortization, grew 21% to $1.72 billion.
In the quarter, the company added 35,000
subscribers to basic cable service and 394,000
high-speed Internet customers, both in the range of
expectations.
Disney Doings
The Disney board, which last month replaced Eisner
with
independent director George Mitchell as chairman of
Disney's board of directors, also issued a resolution
clarifying the duties of the suddenly non-executive
board chairman.
The news emerged from the Disney board's annual
retreat -- the board's first formal meeting since the
annual shareholder meeting in early March in
Philadelphia, when an overwhelming number of Disney
shareholders voted to withhold their votes to re-elect
Eisner to the board.
The vote reflected both dissatisfaction with
Disney's corporate governance and concerns about the
company's performance.
"As a result of the thorough review of Disney's
long-term growth plan, the board is confident that the
management team is executing against its strategic
plan in order to continue to drive long-term
shareholder value," the board said in Tuesday night's
statement. "The board continues to have complete
confidence in Michael Eisner, [Disney Chief
Operating
Officer] Bob Iger and the senior management
team, and
in their strategic growth plan to continue to
strengthen the company's position as the global leader
in quality family entertainment."
The board's confidence,
evidently, has not been
disturbed by such recent events as the poor box-office
performance of Disney's much-hyped historical epic
The Alamo, as well as the recent management
shakeup at the company's television operations.
Addressing investor concern that Eisner has failed
to groom management who might succeed him, the board
said that it "continued its systematic assessment of
both CEO and senior management succession" in
executive session at the meeting.
Disney's shares fell 50 cents to trade at $23.68
Wednesday, while Comcast's rose a dime to $30.07.
