Disney grows as media superpower

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In a move that caught Wall Street and the communications industry by surprise, the Walt Disney Co. announced this morning that it is buying Capital Cities/ABC in a $19 billion merger. Under terms of the deal, which has been approved by both boards, Capital Cities/ABC shareholders will receive one share of Disney stock and $65 cash per share. The combined enterprise will be known as the Walt Disney Co., with Capital Cities/ABC functioning as a wholly owned subsidiary.
Disney Chairman and CEO Michael Eisner, who will head the combined companies, said, "This transaction is a once-in-a-lifetime opportunity to create an outstanding entertainment and media company." He said the deal "positions us in a strong competitive position in an industry, which, by this transaction, we are helping to define. The Walt Disney Co. will now have more global outlets to provide the highest quality entertainment, news and sports programming."
While it is conceivable that another suitor could offer a higher bid for CC/ABC, Mr. Eisner noted that the deal has already been approved by both Disney and CC/ABC boards and that the deal represented good value for both companies and their shareholders.
For Disney, the deal guarantees broad-based distribution both in the U.S. on the ABC Television Network, TV stations and a range of CC/ABC cable networks, as well as worldwide distribution vis-a-vis CC/ABC's powerful overseas distribution arm, including ESPN International.
For CC/ABC, it provides a guaranteed pipeline for some of the strongest and most consistent entertainment content available. Mr. Eisner cited immediate benefits for ABC's Saturday morning kids schedule, which has floundered in recent years, but could be boosted by Disney's powerhouse animated series.
The subtext of those kinds of synergies has interesting implications for DreamWorks SKG, the fledgling Hollywood studio created by former Disney executive Jeffrey Katzenberg and director Steven Spielberg and David Geffen.
DreamWorks has a 50/50 joint-venture with CC/ABC for TV programming, and the new studio was expected to play a big role in re-programming ABC's Saturday morning schedule.
At a press conference in New York today, Disney's Mr. Eisner skirted the issue of CC/ABC's partnership with DreamWorks, saying that Disney and ABC would look to any suppliers for the best programming they could get, but Mr. Eisner has had a bitter rivalry with Mr. Katzenberg ever since he left Disney, formed DreamWorks and began raiding Disney talent.
For shareholders, the deal appears to be a sound one. While CC/ABC shareholders will get to convert each share for a share of Disney stock, plus $65 in cash, Disney shareholders gain the awesome distribution capabilities and assets of CC/ABC at not much more of a premium than CC/ABC has been trading for recently.
Disney will assume about $10 billion in debt to finance the transaction. The merger should have little if any fallout. The only immediately conflicting asset appears to be Disney's KCLA, the independent TV station in Los Angeles, which would conflict with CC/ABC's ownership of KABC. Mr. Eisner said the station will likely be held in trust until the ownership issues are resolved.
Except for KCLA, Mr. Eisner said Disney did not expect to divest of any of CC/ABC's assets, including such unrelated operations as its Fairchild Publications or Chilton Publishing trade publication divisions.
Thomas Murphy, chairman and CEO of Capital Cities/ABC, will retire at the time of the completion of the merger, expected sometime in early 1996. CC/ABC president Robert Iger will continue to manage CC/ABC.

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