Hostile $50bn bid for Disney sets media shares alight

ITV and EMI jump after Comcast offer re-ignites bid fever; Surprise move may bring out rival suitors
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The Independent Online

Share prices of media companies jumped yesterday as world stock markets digested the $50bn hostile takeover bid for the Walt Disney Company by Comcast Communications, the cable television and high speed internet business.

The deal reverberated around stock exchanges as traders hoped Comcast's lead could kick start a wave of similar European media deals.

The UK's newly created ITV, a merger of Carlton and Granada, ended the day as the highest performer in the FTSE 100, up 3 per cent giving it a market value of £5.5bn. EMI, the music group was up 5.5 per cent at £2bn.

Another big riser was HIT Entertainment, the owner of Barney the Dinosaur and Bob the Builder, whose shares rose 6.6 per cent to more than £500m.

Wall Street traders were left stunned by the move by Comcast, which hopes to take advantage of boardroom friction at Disney and a more favourable takeover environment in the US media industry to land the deal.

It wants to combine the distribution power of its cable TV and high speed internet networks with Disney's premium content, including animated characters like Winnie the Pooh and Snow White, and sports channels such as ESPN as well as Disney's ABC TV network.

The proposed $62bn deal, which includes $12bn of Disney debt, was broadly welcomed by US investors and analysts, although most believe Comcast will have to improve its bid before it captures the Magic Kingdom.

There was immediate talk of a possible counterbid, with Viacom and Microsoft mentioned as possible bidders. Rupert Murdoch's News Corp, another player thought to be likely to be interested, ruled itself out.

Angela Kohler, a media analyst at Federated Securities Corporation said: "I think the deal makes a lot of sense for Comcast. The more content it has the more leverage it has."

She said Comcast had been under increasing pressure from rising programming costs and the increasing fees it has been paying to content providers such as ESPN.

"ESPN is of course one of the crown jewels of Disney," said Ms Kohler. "The most likely scenario is that Disney shareholders will hold out for a higher offer but I think this is a good thing for Disney shareholders and I suspect the deal will get done."

Douglas Mitchelson, a media analyst with Deutsche Bank Securities in New York, said: "It is likely that Comcast will have to raise its bid to get a deal done. This announcement is a smart move by Comcast."

The scale and audacity of the deal also heralds a return to more swashbuckling times on Wall Street where Morgan Stanley and JP Morgan, the investment banks advising Comcast on its bid, stand to earn enormous fees if the deal is successful.

Comcast believes its proposal has compelling logic for Disney shareholders, who would become part of a media powerhouse that could sell premium content to millions of American households. As well as Comcast's existing 26 million customer base, its cable network passes a total of 40 million US homes, providing huge growth potential.

Brian Roberts, Comcast's chief executive, first approached Michael Eisner, his opposite number at Disney, in private earlier this week but was rebuffed. Mr Roberts decided to appeal direct to Disney shareholders yesterday. He said he was confident Disney investors and a number of Disney board members would be keen to explore the deal. "I think our proposal speaks for itself," said Mr Roberts. "It is a very fair proposal and we hope the board will consider it."

Comcast's all-share offer is pitched at a $5bn premium to the value of Disney based on yesterday's closing price. Comcast said it would issue 0.78 of a share of Comcast common voting stock for each Disney share. Disney shareholders would end up owning 42 per cent of the enlarged group. The combined company would have a market value of about $120bn and annual revenues of $45bn and earnings of $10bn. Mr Roberts said the merger would create $800m-$1.2bn of additional value through cost savings and improved profitability.

A successful deal would see Mr Eisner ousted from his management role. He has come under pressure from some shareholders over the performance of Disney over the past decade. Roy Disney and Stanley Gold have resigned as Disney directors in protest over Mr Eisner and have been urging shareholders to block his re-election to the board.

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