There's plenty more sharks in the sea as Disney sparks feeding frenzy

Comcast's hostile bid will spur other media giants to join the fray, says David Usborne in New York
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The Independent Online

Travel to Orlando today and you will see that the signs have not changed at the entrance to the planet's most fabled amusement park. In other words, just days after cable giant Comcast made its hostile bid for the Walt Disney Company, we are still a long way from seeing "Comcastworld" featured in Florida travel brochures.

A few things have become clear since Comcast pounced on the Mouse last Wednesday. For one, Disney, owner of movie studios, resorts and TV stations, is now firmly in play, its future as an independent company in doubt. The job of Michael Eisner, its chief executive for nearly 20 years and the recent target of sustained outside criticism, is in jeopardy. But this is a battle that will not be over quickly.

The recently revamped board of Disney, with former US senator George Mitchell as its lead director, has some time to consider its options. Indeed, Mario Gabelli, the asset management chief who owns Disney stock, suggested it could have a full year before investors lose patience and rebel.

At the same time, nothing is the way it was before Comcast chief executive Brian Roberts dropped his takeover bombshell. The ripples will roll through the entire industry, putting pressure on the other media Goliaths, from Time Warner to Viacom, to reassess their positions in the face of an eventual Comcast-Disney combination. And some among them, including Microsoft, must be pondering whether to become directly involved in the battle.

The good news for Comcast has been the mostly positive reactions from analysts, at least to the model of vertical integration that is proposed. It represents a classic case of merging content, of which Disney has oodles, with distribution down the pipes, in this case the cables of Comcast. Wall Street's best-known media analyst, Jessica Reif Cohen of Merrill Lynch, hailed the deal as a "perfect, brilliant combination".

But in other respects, the signs are not so good for Mr Roberts. There is a wide consensus that the $60bn (£32bn) bid is too low and undervalues both Disney's assets and its worth as one of America's most beloved cultural institutions.

Making matters worse, the hesitancy of Comcast's own investors over the deal has sent its shares sliding. That, in turn, has made its stock-based offer even less enticing to Disney investors. By Friday, the deal was valuing Disney shares at $23.44 apiece. Most observers think Disney will expect $30 at least.

The first question for Mr Roberts and for the president of Comcast, Stephen Burke, who until 1998 was himself a senior executive at Disney, is should they consider upping their offer? Comcast, America's largest cable company, has a history of strict financial discipline and some think this scenario unlikely. Yet it is widely agreed that without some sweet- ening of the offer, perhaps with an element of cash, Disney investors won't bite.

Raymond Lee Katz, an analyst at Bear Stearns in New York, says the changing value of the share price now makes Comcast's offer a "take-under" rather than a takeover. "It is realistic to expect the bid to be raised eventually, even if that means Comcast seemingly bidding against itself."

None of these difficulties at Comcast mean Disney can relax, and one early step for the board may be to ditch Mr Eisner. His difficulties, and the shadow they are casting over the company, presumably prompted Comcast to go in for the kill now. They include the recent break-up of Disney's key relationship with Pixar Animation, whose string of blockbuster films includes the recent Finding Nemo.

More pressing still are the attacks being made on Mr Eisner by Roy Disney, who resigned in anger from the board in November. Along with Stanley Gold, who also stepped down, the nephew of Walt is lobbying Disney shareholders to refuse to re-elect Mr Eisner at the annual general meeting early next month. Last week, the campaign gained the support of the Institutional Shareholder Services, a corporate governance adviser, which told institutional shareholders to follow Roy Disney's advice.

At a meeting with analysts in Orlando last week, Mr Eisner went on the counter- offensive. Noting the troubles the company suffered as a result of the 11 September attacks and the economic downturn, he and other executives said they expected double-digit revenue growth through to 2007. "We are performing spectacularly well," Mr Eisner insisted.

If the board concludes it must resist Comcast at all costs, there are avenues to explore. One could be to sell off some of the assets Mr Roberts most prizes, for example ESPN. The sports network is considered the jewel in Disney's crown.

Alternatively, it might consider bulking up, so making itself more expensive and less attractive to Comcast. One option could be to buy EchoStar, the second satellite-delivery company in the US behind DirecTV, now part of Rupert Murdoch's stable. Or Disney, which has never shown much interest in delivery, could look at another film studio, such as Metro-Goldwyn-Mayer.

Early talk of a white knight saving Disney from Comcast has faded. Mr Murdoch ruled himself out of that game immediately. Time Warner might be a candidate, but it already has a good content-delivery mix and is still righting the ship after the AOL debacle. Other contenders being bandied about include John Malone's Liberty Media, InterActive- Corp, headed by Barry Diller, Yahoo, Viacom, which owns CBS, or General Electric, owner of NBC.

Intrigue surrounds the position of Microsoft in all of this. It, too, is keeping mum. Bill Gates is sitting on $52bn in cash; is it possible he could make a friendly bid for Disney? If not, might he step in as Comcast's piggy bank to help it improve its original offer In 1997, Microsoft invested $1bn, in cash in Comcast and helped it acquire AT&T's broadband cable operations in 2001.

Thanks to Comcast, the tectonic plates of the world's media industry are shifting. Where they will settle is anyone's guess. Nor is it clear that Comcast will ever have its insignia on the gates of the Magic Kingdom.