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Betting the Mouse

Disney bucks selloff with $750 mil buyback

Walt Disney Co. snapped up 50 million Mouse House shares at a steep discount Thursday, even as media stocks continued to reel from disaster aftershocks and the broader market tumbled bigtime yet again.

The Disney buyback came from among 135 million Mouse shares acquired by investment firm Goldman Sachs from what conglom called “certain significant stockholders and related parties.” That’s believed to mean interests tied to longtime Disney investor Sid Bass.

Reports of the large bloc of Disney stock on the market put downward pressure not only on Disney but the entire entertainment industry.

Disney shares fell $1.52, or 8%, Thursday to close at $16.98 after hitting a six-year low earlier in the session. Mouse shares have lost almost $14 billion in market value since Monday.

The Disney buyback was announced early in the trading session. At $15 a share — for a total cost of $750 million — the purchase reps a 19% discount from Wednesday’s closing share price.

The Dow Jones Industrial Average, which includes Disney as one of 30 component stocks, plunged 382.92, or 4.4%, to finish at 8376.21 on Thursday. The blue-chip index has plummeted 13% since Monday.

The broadly structured Standard & Poor’s 500 fell 31.56, or 3.1%, to 984.54, and the technology-laden Nasdaq Composite Index declined 56.87, or 3.7%, to 1470.93.

All three indices marked their fourth consecutive daily drop since market trading was resumed Monday in the aftermath of the Sept. 11 terrorist attacks. The media sector has been particularly hard hit in the wake of the tragedy, because already-weak advertising is forecast to slump further as the shaken nation’s slips into recession.

“We have great faith in our assets and long-term value,” Disney spokesman John Dreyer said. “Despite the horrid events of last week, we don’t think there’s been anything that’s undermined the value of our brands or our assets — or, therefore, the long-term picture.”

Disney chairman-CEO Michael Eisner issued a statement striking a similarly optimistic chord.

“We believe that the fabric of everyday life not only will be restored but also will be strengthened, as will the business of (Disney),” Eisner said.

Some analysts applauded the stock buyback. Move follows a $1 billion Disney debt sale Monday aimed at raising capital for just such purchases, though a Mouse spokeswoman cautioned the two actions were not directly connected.

“It’s a great use of capital,” Credit Suisse First Boston analyst Laura Martin observed.

But others judged it risky to increase company debt levels just to buy back shares, especially now as Disney finalizes its acquisition of the Fox Family cable channel. The $5.3 billion acquisition will raise Disney’s debt level by a like amount.

Elsewhere among media stocks, shares in Viacom — parent to the CBS web and Paramount studio — took a 5% drop hit Thursday, as did shares in Warner Bros. parent AOL Time Warner.

Multinationals do OK

Multinational studio parents seemed less devastated. Tokyo-based Sony climbed 1%, Paris-headquartered Vivendi Universal treaded water, and Sydney-based 20th Century Fox parent News Corp. fell a relatively modest 2% despite a report that News Corp. topper Rupert Murdoch sold 1.2 million of his personal shares in the conglom on Monday.

Shares in Santa Monica-based MGM, which has almost no exposure to advertising slippage, were off 1%. By contrast, Disney is considered to rank among the most vulnerable of all studio stocks — and not just because of ad setbacks.

Mouse’s ABC broadcast web, TV stations and radio properties will suffer big ad losses, while conglom’s sprawling theme park and resorts and Disney cruise ship operations also will show declines from slowed U.S. travel over the next several months. Mouse has frozen hiring at theme parks and cut back hours for workers.

Disney has 2.1 billion shares outstanding, and the Mouse share price has shed a total $6.60 over the past four days. So, Disney’s market valuation has been chopped by $13.86 billion over four days to $35.66 billion.

Mouse’s credit rating is getting some scrutiny as well, and any downgrade could cause conglom higher borrowing costs down the road. Ratings service Standard & Poor’s said Thursday that Disney’s debt ratings are under review with “negative implications,” and Moody’s Investor Service said it expects to downgrade Mouse debt ratings.

Basses swim off

It’s considered likely that Texas’ Bass family — longtime Disney stakeholders who helped head Mouseketeer Eisner get his job in 1984 –dumped most of the shares acquired for resale by Goldman Sachs. It’s believed the Basses had borrowed against their Disney stock and needed to sell shares to cover their position.

The only other similarly large Disney shareholder, Saudi financier Prince Al Waleed bin Talal, recently said he wouldn’t be selling any Mouse shares in the current environment.

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