Updated from 7:46 a.m. EDT

Bowing to the market's wishes, Comcast ( CMCSA) threw in the towel on its hostile bid for media titan Disney ( DIS).

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 "As a result, we have withdrawn our offer."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 ( L) 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.

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