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Origins of the Takeover Proposal

Last summer's Universal auction prompted Comcast to focus on Disney.

February 16, 2004|Sallie Hofmeister | Times Staff Writer

Brian L. Roberts walked out of the phone booth, dumbfounded.

Holed up with advisors at the Westin hotel in Philadelphia for seven hours, the Comcast Corp. chief executive had been counseled to waste no time in giving Michael Eisner, chairman of Walt Disney Co., the news: The country's biggest cable company wanted to team up with the venerable entertainment empire.

Preparing for the monumental call, the Comcast team, over cold cuts and Caesar salad, had kicked around various scenarios, expecting Eisner to suggest a face-to-face meeting or tell Roberts he would discuss the matter with the Disney board. As he dialed, Roberts figured Eisner would, at the least, need a few minutes to think about it.

Instead, "he blew me off," is essentially how Roberts described Eisner's reaction, according to people on the team.

"We didn't expect him to dismiss it out of hand," said one advisor.

That moment, a week ago today, set the stage for what is shaping up to be one of the most sensational takeover tries in entertainment industry history.

After getting the cold shoulder from Eisner, Roberts and his team spent 13 hours hashing out details Tuesday at the Manhattan law offices of Davis Polk & Wardwell.

Price had been debated since the Comcast team started thinking seriously about Disney before Christmas. "None of us felt this company was worth a premium of 20% or 30%," said one person on the team. "Besides, we felt we were bidding against nobody."

Early Wednesday, as Disney hosted a conference for analysts and investors in Orlando, Fla., a formal letter went out. It said Comcast would pay about a 10% premium over the Disney share price that day, or some $51 billion -- and assume its $12 billion in debt. (As of Friday's close of trading, the deal was valued at $49 billion.)

Roberts reported earnings to investors, held a news conference to explain the Disney bid and placed what people close to him described as courtesy phone calls to some 150 power brokers in the media, politics and finance. On the list: Federal Communications Commission Chairman Michael K. Powell; Microsoft Corp. Chairman Bill Gates; Viacom Inc. CEO Sumner Redstone; InterActiveCorp's Barry Diller and New York Mayor Michael R. Bloomberg.

By Friday, Roberts and his team had met with Comcast and Disney shareholders in New York, Boston, Denver and Los Angeles.

David Cohen, who is in charge of regulatory and political matters at Comcast, paid a visit to L.A. Mayor James K. Hahn on Friday to underscore Comcast's understanding of Disney's importance to the city. "We wanted to reach out to people right away," said a person close to the Philadelphia-based cable giant.

At Comcast, the daring idea of bidding for Disney was set in motion last summer, when Comcast was invited to enter the auction for Vivendi Universal's entertainment assets.

After buying cable leader AT&T Broadband in late 2002, Comcast had become the biggest pipeline for carrying programming, serving 21.5 million cable TV subscribers. But it controlled little of the content needed to drive the digital services that are the growth engines of the cable business.

Comcast retreated without making a bid, concluding that General Electric Corp.'s NBC -- the ultimate winner of the auction -- had the upper hand. The exercise, however, "got us thinking and more in the mood to do something," said one person in the Comcast camp.

By mid-December, Roberts had assembled advisors at the Four Seasons in Philadelphia to discuss how Comcast might make a move into content. At the meeting were Ralph Roberts, Comcast's co-founder and the CEO's father, and Stephen Burke, a former high-ranking Disney executive who knows Eisner well. Also in the room were Dennis Hersch, a partner at Davis Polk; Steve Rattner, Comcast's longtime investment banker; Paul Taubman from Morgan Stanley; and Roberts' two co-chief financial officers, Larry Smith and John Alchin.

Options were put on the table, only to be swept off. Viacom wasn't a feasible takeover target because Redstone controlled the stock. Time Warner Inc., the world's largest entertainment company, was too big a bite; Metro-Goldwyn-Mayer Inc. was too meager. DreamWorks SKG wasn't even mentioned.

"Disney was the obvious target," said one person at the meeting. The fact that Burke had been a rising star at Disney and knew the culture firsthand was an ace in the hole. What's more, the 61-year-old Eisner was viewed as vulnerable. Two dissident shareholders, including Walt Disney's nephew Roy E. Disney, had resigned from the board and were waging a campaign to unseat Eisner, blaming him for killing the company's creative spirit and driving away top talent.

"Roy Disney's fight was a little bit of a wake-up call," said one person close to Comcast.

The Comcast board was "very enthusiastic" when Roberts raised the idea conceptually of a major acquisition at the December board meeting, sources said.

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