Comcast Cools on Disney

Its shares rise after sources indicate Disney has become too expensive.
Author:
Publish date:

Updated from 12:10 p.m. EST

Comcast

(CMCSA) - Get Report

considers

Disney

(DIS) - Get Report

too expensive to acquire at its current market price, a source close to the company said Tuesday.

Comcast's shares, already buoyed by news the Disney board rejected the offer Monday night, rose sharply on word Comcast had cooled on the transaction, which was first reported by

Reuters

. The shares were recently up 76 cents, or 2.5%, to $30.66. Disney was down a penny at $26.91.

Comcast is "not interested in Disney at current levels," the source said. "If you look at the offer, it represents a 10% premium for Disney. It's a strong proposal. It's compelling for both sets of shareholders if you look at Disney's performance over the last three years."

The 10% premium existed when the offer was first publicized last week but has disappeared in ensuing days, as Disney's shares rose and Comcast's fell. The bid currently values Disney's shares at $23.73 each, almost $3 below their current level.

Late Monday, Disney's board said that while it is open to "any legitimate proposal," the current offer sells its shareholders short. (For a story on the valuation arguments behind the proposed transactions,

click here.)

"We are committed to creating shareholder value now and in the future and will carefully consider any legitimate proposal that would accomplish that objective," Disney's board said late Monday. "In any proposal by Comcast, or any other company, the board will consider and assess the value to be received in exchange for the shares of Disney, and also the appropriate premium to reflect the full value of Disney. "

Comcast publicized its offer last Wednesday after a friendly overture was rebuffed by CEO Michael Eisner, so Monday's rejection is no surprise. The proposal also came shortly after the resignation of two board members who opposed Eisner -- Roy Disney and Stanley Gold -- so the unanimity of its rejection doesn't necessarily reflect complete shareholder confidence in the company's leadership.

Still, the Disney directors praised Eisner in the statement announcing the rejection.

"The board has confidence in the business, financial and creative direction of Disney under the leadership of Michael Eisner and his management team. Furthermore, the board expects the company's current structure and strategy will maximize shareholder value.

"The interests of Disney shareholders, which represent the fundamental priority of the Board, would not be served by accepting any acquisition proposal that does not reflect fully Disney's intrinsic value and earnings prospects."

Separately,

The Wall Street Journal

reported Tuesday that

Viacom

(VIAB) - Get Report

doesn't plan to bid on Disney, removing a potential obstacle to Comcast's offer.