Disney rejects Comcast, says offer is not enough


Directors of the Walt Disney Co. rejected a $66 billion takeover offer from Comcast Corp. last night, but both companies seemed ready to continue the unsolicited effort to create the world's largest media and entertainment conglomerate.

The bid was spurned, the board said in its statement, because the stock offer is worth $3.60 less per share than the market price of Disney's stock.

While rejecting the Comcast offer unanimously, Disney's board of directors based the decision not on the deal's merits but on its price - 0.78 of a share of Comcast for each share of Disney. Since the surprise offer was made Wednesday, the value of Disney's stock has risen more than 15 percent, while Comcast's has dropped, diluting the offer's value and indicating that Wall Street expects a sweeter offer.

Disney's directors said they are still prepared to "consider any legitimate proposal" that would increase value for its shareholders.

Comcast executives responded tersely and seemed to position themselves closer to a strategy of bypassing Disney's board of directors and pursuing a hostile takeover.

Neither company suggested its next move in the increasingly tense standoff, but Comcast directed its response toward owners of Disney's stock - the final target if Comcast executives decide that appeals to the board of directors have failed.

"We maintain the belief that our merger proposal represents a sound and compelling proposition for both sets of shareholders," Comcast officials said in a statement.

Disney's rejection of the merger offer was expected to some degree; analysts have long maintained that the proposal was dead if Comcast's offering price didn't rise. Under its initial proposal, Comcast would have paid about $54.1 billion in stock and agreed to take on $11.9 billion worth of Disney's debt.

Open to more money

Given the wide swings in the two company's stocks over the past week, Disney's directors said that offer "does not reflect fully Disney's intrinsic value and earnings prospects." The board also said that it considers the company sound and already on track to earn more money for its shareholders, but the directors left themselves room to consider other takeover offers.

"In any proposal by Comcast, or any other company, the Board will consider and assess the value to be received in exchange for the shares of Disney, and also the appropriate premium to reflect the full value of Disney," the board said in a statement.

"We are committed to creating shareholder value now and in the future and will carefully consider any legitimate proposal that would accomplish that objective," the board said. Further, "the interests of Disney shareholders, which represent the fundamental priority of the board, would not be served by accepting any acquisition proposal that does not reflect fully Disney's intrinsic value and earnings prospects."

The Disney board also reaffirmed its confidence in its chief executive, Michael D. Eisner, saying it expected the company's current structure and strategy to enhance shareholder value. Eisner has been under siege from several factions lately, including disgruntled former board members, corporate partners, restless shareholders and, now, Comcast.

Disney's board members were presented with the results of an in-depth review by investment bankers and lawyers hired by Disney after Comcast announced it was interested in acquiring the company. It was expected that the board would reject the bid, although few analysts and investors predicted the company would act this quickly.

Several analysts say that Disney, which closed Friday at $26.92, could be worth as much as $35 to $38 a share if it had been sold yesterday. However, Disney's board will consider any offer not only based on a dollar amount; it also would be based on whether that amount is made up of stock, cash or both.

Just because the board has said no does not mean Comcast will go away. According to several people close to Comcast, the cable operator has explored filing a shareholder consent action with the Securities and Exchange Commission. That move would enable Comcast to seek the consent of shareholders to replace some or all of Disney's directors with its own, more friendly candidates.

Comcast is a Disney shareholder, and if it proceeds with such an action it will have 60 days to solicit investors - once it announces a record date - in the hope of winning a majority vote.

While that's an aggressive tactic, it has been used in other testy situations. Last year, Mesa Air Group announced it wanted to acquire Atlantic Coast Airlines in a stock swap valued at $512 million. When Mesa was not welcomed, it sought to replace several board directors with its own candidates. In that case Mesa abandoned its bid in December because Atlantic had protections against such a move.

If Comcast proceeds with such an action, it will be the second time in recent months that Disney's board members have been targets alongside Eisner.

Two former board members, Roy Disney, the nephew of the company's co-founder, and Stanley Gold, have been campaigning in recent weeks to get investors to withhold votes for Eisner and three other board members at the annual meeting March 3 in Philadelphia.

Sign of discontent

The short-term goal is to get 35 percent of Disney's shareholders to withhold their votes. If that happens, under a proposal currently being reviewed by the SEC, Disney could be forced to include alternate board candidates suggested by major shareholders next year. While investors and analysts say it is unlikely that so many shareholders will withhold their votes, a smaller number could still show palpable investor discontent with Eisner.

Disney's board has undertaken major changes in the past few months to ensure that its board is independent, including reducing its size and replacing directors. But Eisner is still criticized for being surrounded by board members considered very much on his side.

George J. Mitchell, the former senator and presiding director, has taken a leading role in defending Disney and Eisner in particular, and is playing a pivotal role in the board's governance.

The New York Times contributed to this article.

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