A media giant is born Merger is biggest in entertainment industry's history DISNEY, CAPITAL CITIES/ABC MERGER

THE BALTIMORE SUN

Mickey became The Mouse That Roared yesterday as the Walt Disney Co. said it would acquire Capital Cities/ABC Inc., parent company of the nation's No. 1-rated television network, in the largest merger ever in the entertainment industry.

If the $19 billion deal is approved by shareholders and passes regulatory scrutiny, it would be the second-largest corporate acquisition ever. Only the $25 billion purchase of RJR Nabisco Inc. by Kohlberg Kravis Roberts & Co. in 1989 was larger.

The agreement would create an international colossus with interests in news, entertainment production, broadcasting, cable TV programming, sports teams, newspapers, theme parks and other ventures. Sam Donaldson and Donald Duck, Roseanne and Pocahontas, "NYPD Blue" and Snow White would all live under the same corporate roof.

"The merger will create tremendous value for the shareholders of each company by taking full advantage of the complementary strengths of each organization," the companies said in a statement issued by Disney Chairman Michael D. Eisner and Capital Cities/ABC Chairman Thomas S. Murphy.

Under the merger agreement, Mr. Eisner would become chairman and chief executive officer of the combined company, which will continue to be known as The Walt Disney Co. Mr. Murphy, 70, will join the Disney board and give up his role as chief executive of New York-based Capital Cities/ABC, which will be run as a wholly owned subsidiary of Burbank, Calif.-based Disney.

A. Michael Noll, former dean of the Annenberg School for Communication at the University of Southern California, said the deal raises questions of what will become of NBC and CBS now that their rival has allied itself with one of the greatest names in entertainment.

"It puts tremendous pressure on the other two to find a partner," said Mr. Noll.

CBS stock climbed $1.75 amid reports that Westinghouse Electric Corp. could announce an agreement to acquire the third-place network as early as today -- possibly starting a bidding war. General Electric Co. Chairman Jack Welch has expressed reluctance to sell more than a minority stake in NBC, but that was before the Disney deal raised the value of all the networks.

Wall Street analysts hailed the Disney-Capital Cities deal, saying each company brings significant strengths and few weaknesses to the union. Capital Cities' stock soared, gaining $20.125 to close at $116.25. Disney's stock gained $1.25 to close at $58.625.

"These are two blue-chip companies coming together," said Gary Farber, entertainment analyst for NatWest Securities Corp. in New York. He said the purchase will not put an excessive debt burden on Disney because both companies were under-leveraged before the agreement.

Mr. Farber noted that the merger would bring together Disney's television studio, which already produces the ABC hits "Home Improvement" and "Ellen," with ABC's network of 225 affiliated and eight company-owned stations.

"A natural fit"

"It's a natural fit. The networks need the product, and the studios want to have an outlet to put their product in," he said. Mr. Farber also noted the multiple opportunities for cross-promotion that the deal would create, including tie-ins between ABC programs and Disney's theme parks.

Joe Lewin, general manager of the ABC-affiliated WMAR-TV (Channel 2), said he was enthusiastic about the deal's potential impact on programming.

"It just seems to me it's going to be better for everybody, including viewers," said Mr. Lewin. "If ABC gets first dibs on the programming that Disney produces, it seems to me that that's a big advantage."

The merger announcement came as a surprise to many in television.

Mr. Lewin said the talk in the industry had been that Disney would acquire ailing CBS. He said that when David Westin, president of ABC, announced the deal in a conference call with ABC affiliates yesterday morning, he told them that he had learned about the merger only on Friday.

In a joint appearance with Mr. Murphy on ABC's "Good Morning America," Mr. Eisner said the deal came together a week ago Thursday when the two men met by chance in the resort town of Sun Valley, Idaho. "I literally passed Tom Murphy in Sun Valley on the street . . . and said, 'Tom, I think the time is right now. Every part of your company is working. Every part of our company is working.

"There are no fires in any divisions. Disneyland in Paris is doing great. They're No. 1 in prime time. Maybe now is the time,' " said Mr. Eisner. "He simply looked at me and said, 'OK.' "

The merger will bring together two companies with extensive entertainment interests but little direct overlap. For that reason, the merger will not involve any loss of jobs, executives of the two companies said.

Disney, with $10.1 billion in 1994 revenue, derived 48 percent of that total from filmed entertainment, a category that includes Walt Disney Pictures, Touchstone Pictures, Hollywood Pictures, Miramax, the Disney Channel cable network and Walt Disney Television.

Its theme parks and resorts, including Disneyland in California and Walt Disney World in Florida, accounted for 34 percent. Consumer products, including the Disney Store retail chain and licensing of Mickey Mouse and other characters, accounted for 18 percent. The company's net income reached $1.1 billion, 25 percent higher than in 1993.

Besides ABC, Capital Cities owns an 80 percent interest in the ESPN and ESPN2 sports cable networks -- an investment that could have synergy with Disney's ownership of the Anaheim Mighty Ducks hockey team and plans to buy 25 percent of the California Angels baseball team.

Cap Cities, with 1994 revenue of $6.38 billion and net income of $679.8 million, also owns eight television stations, 21 radio stations, various magazines and seven daily newspapers, including the Kansas City Star and Fort Worth (Texas) Star-Telegram.

The merger, which is expected to be completed next year, must be reviewed by federal antitrust officials and the Federal Communications Commission, but Mr. Noll said he saw no issues that are likely to stymie the deal.

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