Disney purchase of Cap Cities/ABC OK'd by shareholders $19 billion marriage with hardly any tears


NEW YORK -- Shareholders yesterday approved Walt Disney Co.'s purchase of Capital Cities/ABC Inc., a $19 billion acquisition that will give Disney the pieces it needs to compete in an increasingly crowded industry.

The addition of Capital Cities' television and cable networks, such as ABC and ESPN, supplies Disney with top-ranked news and sports programming to go along with its world-leading movie and theme park businesses. Such content will give Disney a leg up as a growing number of cable channels, on-line services and even broadcast networks battle for an audience, executives said.

"We need to have an organization that can do it all," said Disney President Michael Ovitz.

In separate but simultaneous meetings in New York, 73 percent of Disney shareholders and 79 percent of Cap Cities shareholders voted in favor of the cash-and-stock transaction, the largest ever in the entertainment and media industry.

Disney's purchase won't be final until the Federal Communications Commission and the U.S. Department of Justice approve the transaction.

Disney executives said the FCC is likely to take action at a Jan. 18 meeting, but the federal government shutdown could delay the decisions.

Analysts and investors were generally unanimous in their approval of the purchase, which will combine the best-known brand name in animation and theme parks with the second-ranked ABC Network, 10 local television stations and cable networks.

"They will do great business together," said Gordon Crawford of Capital Research & Management Co., Disney's largest shareholder with 12 million shares and Cap Cities' No. 3 at 5.4 million.

Shares of Burbank, Calif.-based Disney fell 75 cents, to $60.50, in trading of 2.4 million shares, double its three-month daily average of 1.2 million. Cap Cities shares were down 87.5 cents, at $124.125.

Stephen Bollenbach, Disney's chief financial officer, said the company will help finance the acquisition by selling $8 billion in one-month to six-month commercial paper. It will convert about $4 billion of the paper into notes maturing in at least three to seven years, he said.

Disney will write off $400 million in goodwill annually during the next 40 years because of the acquisition, Mr. Bollenbach said. The write-off will affect earnings growth in 1996, but will then become a recurring item that will not affect the 20 percent goal, he said.

The one negative mentioned by analysts is that Disney's earnings in the next few quarters may be diluted because of the cash-and-stock transaction. Bollenbach said increased cash flow from Cap Cities will make up for the 155 million shares, or $9 billion, that may be issued to pay for the transaction.

Revenue will reach $21.3 billion in 1996, predicted Schroder Wertheim analyst David Londoner. That would make it second to Time Warner's estimated revenue of $24.4 billion. Still, Disney is expected to have cash flow next year of $5.2 billion next year, topping Time Warner/Turner's $4.9 billion, Londoner said.

"The deal is a slam-dunk by any definition," said Arthur Rockwell, an analyst at Yaeger Capital Markets in Los Angeles.

Both Walt Disney Co. Chairman Michael Eisner and Mr. Ovitz painted themselves as longtime television executives who don't plan any big changes to the ABC network.

Mr. Eisner worked for ABC for many years, and Mr. Ovitz said he has been selling programs to the network for 30 years. In addition, ABC provided money to construct Disneyland.

Mr. Eisner and Mr. Ovitz appeared to be conscious of their new roles as broadcasters.

Mr. Eisner made an impassioned speech in defense of independent news. Mr. Ovitz, who will directly oversee ABC, said he aims to create Disney and ABC brands that can cut through the glut of cable channels that has caused confusion among consumers.

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