Comcast's letter to Disney

Roberts lays out Comcast's case for takeover of Disney to resistant Eisner.

 

Below is the letter sent by Brian L. Roberts, Comcast's president and chief executive officer, to Michael Eisner, Disney's chief executive officer:

 

February 11, 2004

 

Mr. Michael D. Eisner

The Walt Disney Company

500 South Buena Vista Street

Burbank, California 91521

 

 

Dear Michael:

 

I am writing following our conversation earlier this week in which I proposed that we enter into discussions to merge Disney and Comcast to create a premier entertainment and communications company. It is unfortunate that you are not willing to do so. Given this, the only way for us to proceed is to make a public proposal directly to you and your Board.

 

We have a wonderful opportunity to create a company that combines distribution and content in a way that is far stronger and more valuable than either Disney or Comcast can be standing alone. To this end, we are proposing a tax-free stock for stock merger in which Comcast would issue 0.78 of a share of its Class A voting common stock for each share of Disney. This represents a premium of over $5 billion for your shareholders, based on yesterday's closing prices. Under our proposal, your shareholders would own approximately 42% of the combined company.

 

The combined company would be uniquely positioned to take advantage of an extraordinary collection of assets. Together, we would unite the country's premier cable provider with Disney's leading filmed entertainment, media networks and theme park properties. In addition to serving over 21 million cable subscribers, Comcast is also the country's largest high speed internet service provider with over 5 million subscribers. As you have expressed on several occasions, one of Disney's top priorities involves the aggressive pursuit of technological innovation that enhances how Disney's content is created and delivered. We believe this combination helps accelerate the realization of that goal-whether through existing distribution channels and technologies such as video-on-demand and broadband video streaming or through emerging technologies still in development-to the benefit of all our shareholders, customers and employees.

 

We believe that improvements in operating performance, business creation opportunities and other combination benefits will generate enormous value for the shareholders of both companies. Together, as an integrated distribution and content company, we will be best positioned to meet our respective competitive challenges. We have a stable and respected management team with a great track record for creating shareholder value. In fact, our shares have consistently outperformed leading stock indices by significant margins, including the S&P 500 by a margin of more than 2 to 1 since Comcast went public in 1972.

 

The Comcast management team greatly appreciates and is highly respectful of the Disney heritage. We know that there are many talented executives at Disney who we envision would also play a key role in managing the combined company. We also would welcome directors from your Board joining our Board.

 

We have analyzed the issues associated with regulatory approval and are confident that all necessary approvals can be obtained in a timely fashion. Given the landscape that has evolved in our industry over the past few years, the creation of integrated content and distribution companies is essential to increasing the level of competition. The FCC's existing program access and program carriage rules ensure that the combined company will continue to make all of its satellite-delivered national and regional cable networks available on a non-exclusive, non-discriminatory basis and that there will be no discrimination against unaffiliated programming services, all consistent with the undertakings made by News Corp. in its recent acquisition of DirecTV.

 

We hope that the Disney Board will pursue the opportunity that this proposed combination presents to your shareholders.

 

Very truly yours,

 

Brian L. Roberts

President and Chief Executive Officer

I am a long time Disney freak and anti-Eisner. Should I trust Comcast??

 

 

Hmmm... And yet Comcast has raised my rates three times because they're losing money.

 

Screw it. I say all us Disney freaks pool our money and buy Disney ourselves. Now if you'll excuse me, I'm off to rifle through the couch for spare change.

Comcast Proposes to Buy Walt Disney

By SKIP WOLLENBERG, AP Business Writer

 

NEW YORK - In a stunning move, cable TV giant Comcast Corp. proposed early Wednesday to buy Walt Disney Co., the iconic entertainment powerhouse, for stock valued at about $54 billion. It said Disney chief Michael Eisner had rebuffed its request for talks.

 

The nation's biggest cable systems operator said it would also assume $11.9 billion in debt held by Disney, which also owns ABC and ESPN television networks.

 

Comcast's stunning proposal was made even as Disney boss Michael Eisner is fending off criticism from former board members Roy E. Disney, the nephew of Disney founder Walt Disney, and Stanley E. Gold about his performance and lack of a succession plan as Disney's chief executive.

 

Comcast said Eisner declined earlier this week to discuss a possible merger.

 

"This is a very exciting moment," Comcast CEO Brian Roberts said in a conference call with investors and analysts. Roberts said the combination "would create one of the world's premier entertainment and communications companies, and, we believe, restore the Disney brand to prominence and the company to growth."

 

Noting that the offer for Disney had already been rejected by Eisner, an analyst asked Roberts what would come next. "The ball's in Disney's court," Roberts replied.

 

Calls to Disney representatives Zenia Mucha, Michelle Bergman and John Spelich were not immediately returned early Wednesday. Michael Citrick, spokesman for Disney and Gold, said they had no immediate comment.

 

Paul Kim, senior media analyst at Tradition Asiel Securities, said that while Roberts making a bid for Disney in and of itself is not surprising, the timing is.

 

"It's going for the jugular," he said. "He is using this vulnerable time to force Disney's hand."

 

Kim also said Comcast is basically a cable company, and might be biting off more than it can chew. "I think they underestimate the complexity of being a broad-based media company," he said.

 

Comcast also released a letter sent to Eisner indicating that Eisner had personally rejected Roberts' offer to enter into discussions about a merger earlier in the week.

 

The letter from Roberts called it "unfortunate" that Eisner was not willing to enter into discussions. "Given this, the only way for us to proceed is to make a public proposal directly to you and your board," the letter stated.

 

On Comcast's conference call, Steve Burke, the head of the company's cable division, told investors that Comcast believed it could greatly improve the performance of several of Disney's key businesses, including ABC, the ABC Family channel, animation and theme parks.

 

"We think job one is restoring the company to its previous levels of profitability," said Burke, who had previously worked at Disney for 12 years.

 

Under the merger, Comcast said it would issue 0.78 of a share of its Class A stock for each Disney share, and Disney shareholders would retain 42 percent of the combined company.

 

The deal values each Disney share at $26.49, a 10 percent premium over their closing price Tuesday.

 

In a sign that investors expect a nasty fight, Disney's shares shot up $3.36, or 14 percent to $27.44 in heavy trading on the New York Stock Exchange (news - web sites), well above Comcast's current offer. Comcast's Class A shares tumbled $3.14, or 9 percent, to $30.79 on the Nasdaq Stock Market.

 

Philadelphia-based Comcast merged with AT&T Broadband in November 2002, making it the largest cable TV company in the country with 21 million subscribers. The company noted that merger in its sales pitch Wednesday.

 

"Our management team has a proven track record of successful integration of our merger partners," Roberts said.

 

Comcast Corp. also reported Wednesday that it swung to a profit of $383 million, or 17 cents per share, for the quarter ending Dec. 31 thanks to continued strong demand for its digital cable and high-speed Internet services. Revenues jumped 58 percent to $4.74 billion.

 

Comcast also has extensive holdings in content providers, with majority stakes in Comcast-Spectacor, the owner of the Philadelphia Flyers and 76ers; Comcast SportsNet, E! Entertainment Television, the Style Network, Golf Channel, Outdoor Life Network and G4.

Seems like Jeb Bush is worried about this...