Comcast offers to buy Disney for $66B

The cable telecom company sees the merger as a way to get quick access to content

Cable telecommunications company Comcast Corp. has offered to buy The Walt Disney Co. for $66 billion in an all-stock transaction. The merger terms offer Disney shareholders control of 42% of the combined company.

Earlier this week, Comcast had approached Disney privately with an offer to buy the company, according to a letter from Comcast CEO Brian Roberts to Disney Chairman and CEO Michael Eisner, which Comcast made public today. Comcast was rebuffed.

In the letter, Roberts suggested that Disney could benefit by developing new ways, such as video on demand and broadband video streaming, to deliver its content to Comcast subscribers. Comcast's customer base includes 21 million cable TV subscribers and 5 million high-speed Internet access subscribers.

"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," Roberts wrote.

Comcast would issue 0.78 share of its Class A common stock for each share of Disney, creating a combined company with a market capitalization of $122 billion and a hand in everything from high-speed Internet access to the ABC broadcast network and the famous Disney amusement parks, Comcast said.

Comcast claims that its deal represents a premium of $5 billion for Disney's shareholders over the company's current market value and said it is confident that the regulatory approvals necessary for a merger could be obtained in a timely fashion.

The proposed deal recalls an earlier merger between a content provider and service provider: America Online Inc.'s merger with Time Warner Inc., said Chris Charron, research director at Forrester Inc. "This is another example of a company that owns the pipes trying to use that as leverage to move into another piece of the value chain," he said.

Comcast is looking to the merger to give it quick access to content, especially for its new Video o Demand cable service, which many media companies have been wary of licensing content to because of the threat it poses to traditional content syndication arrangements, a rich source of revenue over the years, he said.

Buying Disney would give Comcast a rich source of programming for Video on Demand and establish Comcast as the premiere company in the rapidly converging markets for delivering broadband Internet and video entertainment to households. That would help it fend off competition from other telecommunications and satellite companies that are vying for consumers, Charron said.

However, if successful, the merger could raise troubling questions about media consolidation, he said.

"For those who oppose the current media ownership laws, this kind of merger is as concerning as a combination of media companies. You have the largest cable company and one of the largest media companies merging," he said.

Comcast scheduled a news conference later today to discuss its plans.


Copyright © 2004 IDG Communications, Inc.

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