Comcast Proposes Disney Merger

Disney and Pixar may be parting ways, but will the Mouse House be forming an alliance to become part of a whole new company? Comcast Corp. hopes so. The broadband cable network giant today announced that it has made a proposal to The Walt Disney Co. to merge the two companies.

In a letter sent to Michael Eisner today, Comcast president and CEO Brian L. Roberts informs the Disney CEO, "I am writing following our conversation earlier this week in which I proposed that we enter into discussions to merge Disney and Comcast to create a premier entertainment and communications company. It is unfortunate that you are not willing to do so. Given this, the only way for us to proceed is to make a public proposal directly to you and your Board."

Terms of the proposed tax-free transaction stipulate that Comcast would issue 0.78 of a share of Comcast Class A voting common stock for each Disney share. In addition, Disney shareholders would receive a premium of more than $5 billion, based on yesterday’s closing prices, plus full participation in the combination benefits and ownership of 42% of the combined company. Comcast’s proposal values Disney at $66 billion, including assumption of $11.9 billion of Disney’s net debt.

"We have a wonderful opportunity to create a company that combines distribution and content in a way that is far stronger and more valuable than either Disney or Comcast can be standing alone," Roberts continues in his letter to Eisner.

The proposal will no doubt be a hot topic of discussion when Disney holds its annual meeting in Philadelphia on March 3. Looming over that assembly already is Roy Disney’s plea for shareholders to vote "no" on the election of Eisner and three other board members.

Just over a year ago, Comcast acquired AT&T Broadband, which was then twice the size of Comcast. That merger, says Comcast, resulted in immediate reversal of basic subscriber loss and acceleration of system upgrades, as well as significant launches of new products and services such as video-on-demand and HDTV.

Comcast is being advised by Morgan Stanley, JPMorgan, Quadrangle Group and Rohatyn Associates. Davis Polk & Wardwell is the company’s legal advisor.