Deal Would Create Second-Largest Media Company

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NEW YORK ( -- Comcast Corp., the largest cable operator in the U.S., made a $54 billion unsolicited bid for the Walt Disney Co., a deal that would create the world's second-largest media company.

At the press conference today, Comcast's CEO, Brian Roberts, and executive vice president, Stephen Burke, who is a former Disney cable executive, discussed the deal as Ralph Roberts, the cable company's patriarch, sat in the front row.

Evoking Disney's past
Comcast would issue 0.78 of a share of

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Comcast class A voting stock for each Disney share, which would leave Disney shareholders with 42% of the combined company. In their pitch, the Comcast executives constantly pointed out that the merger would return Disney to its former glory as a profitable and prestigious content creator and restore the company's operating performance "to what it was not too long ago."

Disney's content portfolio includes its movie studios, cable properties such as ESPN and broadcast TV network ABC.

Mr. Burke said Comcast would focus on raising the profile and profitability of ABC -- "which doesn't make much money in broadcast," he said -- from a weak No. 4 network to "halfway to No. 3." They would also reinvigorate Disney's cable assets, especially ABC Family channel.

"Disney bought it for about $5 billion," Mr. Burke said, "and it hasn't made a return on their investment yet." Mr. Burke projected that the Comcast merger would create about $300 million in increased valuation for the Disney cable properties, mostly through "eliminating duplications and redundancies."

Emphasize animation
Messrs. Burke and Roberts said Comcast would return Disney back to its roots in the animation business. "They were once the unchallenged leader," Mr. Burke said. "Animation is the heart of what the Disney company is." He said the goal would be to "make sure Disney regains its place as a leader in animation" because it "drives everything else."

The mention of Disney's animation legacy comes as talks between Disney and animation company Pixar to renew their contract broke down late last month. Pixar's movies accounted for some 56% of Disney's operating income between 1999 and 2003. Steve Jobs, CEO both Apple Computer Corp. and Pixar, said he would be looking for another distribution partner after the Disney relationship ends in 2005. Among those in hot contention: News Corp.'s 20th Century Fox, Time Warner's Warner Bros. and Sony.

Comcast's takeover of Disney would give it $26 billion in net revenue and rank it second to Time Warner, which has more than $28 billion in net revenue, according to Advertising Age figures. The move would open a rivalry between Time Warner and News Corp. on a variety of content and distribution fronts.

Trouble for CEO Eisner?
The proposed deal couldn't come at a more inopportune time for Disney's CEO, Michael Eisner, who has fought off moves by some within the company to unseat him. Former U.S. Senator George Mitchell, a Disney board member, recently released an open letter calling on fellow board members to consider successors to Mr. Eisner. And former Disney directors Roy Disney and Stanley Gold have been leading the charge to unseat Mr. Eisner, whom they have publicly accused of mismanaging the company.

In a letter addressed to Mr. Eisner and given to Disney's board, Mr. Roberts suggests he made his hostile bid only after the Disney chief refused to discuss a friendly merger.

"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," the letter reads. "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."

At the press conference, Mr. Roberts sidestepped when asked if his offer was taking advantage of the internal upheaval at Disney.

"You look at various factors in the market when you make moves like this," Mr. Roberts said. "This is a compelling combination."

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