Comcast cools

Mouse's cold shoulder ends buyout bid

This article was updated at 6:15 p.m.

NEW YORK — Comcast formally withdrew its $48 billion all-stock bid to buy Disney on Wednesday, ending — at least for now — the Philadelphia company’s imperial ambitions to build the world’s next content-distribution battleship.

Comcast cited the Mouse House’s utter lack of interest in even entertaining a combination of the two companies. “It has become clear that there is no interest on the part of Disney’s management and board in putting Comcast and Disney together,” said Comcast prexy-CEO Brian Roberts.

No doubt humbled by both an intransigent Disney board and the deep reticence of his own shareholders, Roberts will instead refocus his firm’s attention on Comcast’s core cable business while sniffing judiciously at less grandiose acquisitions.

Roberts said Comcast has always been disciplined in its acquisition approach and “being disciplined means knowing when it is time to walk away. That time is now.” Proving its newfound conviction, company promptly announced it was recommencing plans to buy back its own stock, which has languished ever since Comcast mounted its hostile bid for the Mouse House.

Strange strategy

Coming just over two months after Comcast proclaimed its affections for Disney in a glitzy Feb. 11 press conference, the withdrawal closes a bizarre chapter in the annals of media dealmaking. Many observers maintain Comcast was ill-advised to make its hostile approach without some assurances that the Mouse board would be receptive. Equally odd was how long Comcast let its bid sit on the table, since its presence simply helped prop up Disney’s share price while dragging down its own.

“(Our) only mistake was the assumption that the Disney board would talk with us,” Roberts said Wednesday. “It was inconceivable to me that they wouldn’t want to have a dialogue with the world’s leading distribution company.”

“We always said we wouldn’t bid against ourselves,” Roberts added, noting that the change in each company’s share value since the initial bid would have required Comcast to give away “more stock than originally planned … it just didn’t make financial sense.”

Roberts nevertheless said he still believes that combining Comcast and Disney would benefit customers and shareholders.

Future bids?

Prodded as to whether Comcast may revisit a Disney pitch in the future, however, exec VP Steve Burke said Mouse officials had “made it pretty clear” they didn’t want to talk, so re-bidding “couldn’t be further from our agenda right now.”

Few Wall Streeters believe Comcast is gone for good, however, particularly if Disney stock slides in the face of any bumpy earnings results later this summer. “This could just be a negotiating tactic,” one observer said.

It looks unlikely the Disney board is going to have a change of heart anytime soon. After its two-day retreat this week, the board gave CEO Michael Eisner its full support and indicated it was confident that current senior management was following a “strategic growth plan that would continue to strengthen the company’s position as the global leader in quality family entertainment.” However, under the new governance guidelines adopted by the Disney board, new chairman George Mitchell will be empowered to talk directly to would-be bidders.

Regardless, Prudential analyst Katherine Styponias noted that investors will continue to worry in the near term that Comcast will make another attempt at Disney or another large acquisition.

Shares unshaken

The market seemed to digest the news without much ceremony. Comcast shares rose 23¢, or 0.77%, to $30.20 while Disney’s closed down 23¢, or 0.95%, at $23.95.

Roberts insisted that the cabler was “moving on” and has plenty of room for growth in its core cable and services businesses, as well as in its content and ad sales business lines. He also said the company was in a position to at least look at other acquisition possibilities.

As for whether Comcast may still consider buying a content company such as MGM, Roberts said that while he believes the company can add shareholder value by exploiting content over its large footprint, such deals “are not critical to growth.”

He did indicate that the cabler will almost certainly take a hard look at highly complementary Adelphia Communications but noted that opportunities for expansion could come by building, partnering or buying new properties.

“With almost 22 million customers we’re in a position where we don’t have to make any acquisition … we’ve always said that we want to be opportunistic and entrepreneurial” provided it creates long-term value for shareholders, Roberts said.

All that seemed to suit Comcast shareholders just fine, as the company instead tried to focus attention on its strong top and bottom line financial growth for its fiscal first quarter.

Boasting of growth

“Comcast is in the best shape in its history,” Roberts said Wednesday morning, as the company rolled out a stellar array of first quarter 2004 financials and reminded investors that with 21% cash flow growth, it is “the fastest-growing media and telecommunications company in the nation.”

Merrill Lynch on Wednesday upped its rating on the stock from neutral to buy with a price target of $46 per share, while simultaneously reinstating a neutral rating on the Mouse, noting near-term weaknesses in the broadcast and studio segment. Another bank, Blaylock & Partners, cut its price target on Disney from $30 to $26, noting that it was unlikely any other buyer would offer a better deal.

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