Mouse Hunt

Illustration By: Mike Nawyn

What would a Comcast-Disney merger mean to Philly?

by Daryl Gale

Earlier this week, Disney’s board of directors rejected Comcast’s highly publicized takeover bid, while leaving the door open for a bigger offer. But two big questions still linger: What effect would a Comcast-Disney merger have on Philadelphia, the city Comcast calls home? And why should the average Philly taxpayer give a hoot?

The answer, as usual, depends upon whom you ask.

It's all speculation, but one thing's for sure: In just two weeks, Center City will be the epicenter of the debate, whether the deal goes through or not.

Disney’s annual shareholder’s meeting will be held March 3 at the Pennsylvania Convention Center, and while these things are normally staid affairs, this one promises to be full of fireworks. Not only is Disney in the midst of fighting Comcast’s takeover from without, but internal struggles on the board of directors threaten to implode the company from within.

Disney CEO Michael Eisner has come under fire recently from no less than Roy Disney, founder Walt’s nephew and a former board member. Disney, the last board member to bear the family name, huffily resigned as vice chairman of the board in November and urged his fellow stockholders to oust Eisner at their first opportunity. In his letter of resignation addressed to Eisner, Disney pulled no punches, despite owning less than 1 percent of the company’s stock.

"You and I have had serious differences of opinion about the direction and style of management in the company in recent years," wrote Disney. "After 19 years at the helm, you are no longer the best person to run the Walt Disney Company."

Disney then blasted Eisner for the company’s recent failures including the abysmal ratings of Disney subsidiary ABC’s primetime lineup; the loss of theme-park revenue; and the erosion of the company’s reputation from the wish-upon-a-star weaver of childhood dreams to a corporation that is "rapacious, soul-less, and always looking for the quick buck rather than long-term value."

Along with fellow disgruntled former board member Stanley Gold, Disney decided to mount a grassroots attack against Eisner and other board members. Their plan is to rally like-minded shareholders and customers and storm next month’s meeting to urge shareholders to dump Eisner and the board and return Disney to its former fiscal and public relations glory.

Comcast, a bona fide media giant that employs 59,000 people out of its Philadelphia headquarters, is the nation’s leading cable and broadband communications provider, serving more than 21 million customers in 41 states, including 2.9 million homes in the Philadelphia market. It owns the Flyers, the Sixers and the sports arena they play in, and it has Gov. Ed Rendell lined up to provide it with a tax-exempt, 60-story office tower at 17th and JFK Boulevard just to show his commitment to keeping them in town.

Despite Comcast’s rapid growth and distribution potential, Comcast is a smaller company than Disney, and the board rejected the deal as low-ball.

"We are committed to creating shareholder value now and in the future and will carefully consider any legitimate proposal that would accomplish that objective," read a statement issued by the board Monday night. Experts interpret that to mean that while Comcast’s offer of $54 billion in stock plus the assumption of $11.9 billion worth of Disney’s debt was considered too low, maybe they’d consider it if Comcast sweetened the deal.

Tim Fitzpatrick, Comcast’s director of corporate communications, says the offer was fair and that it "reflects a full and generous valuation based on Disney’s prospects and performance over a long period." He considers it "a sound and compelling proposition for both sets of shareholders."

So, does that mean the $66 billion represents Comcast’s final offer?

"We’re not out of the hunt yet," says Fitzpatrick, refusing to elaborate.

Some media watchdogs think the merger is a bad idea and urge caution on the part of consumers.

Inja Coates, of Media Tank, a Philadelphia-based nonprofit dedicated to fostering awareness and activism around media-related issues, looks at the deal with a healthy dose of skepticism.

"In general, it’s a scary idea," Coates says. "If Comcast owns the content of the shows it carries, who’s minding the store for the consumer? For instance, if they own the news outlets, how do those outlets cover Comcast stories? We already saw problems with that in Atlanta with Ted Turner, so imagine the scale of a Comcast-Disney mega-merger. It may not be as overt as that, of course, and [Comcast CEO] Brian Roberts isn’t Ted Turner. In this case, it may be more subtle."

Coates also says the city’s reluctance to move forward on cable access may have helped contribute to the Comcast bid. "They’ve been aggressive in fighting public cable access from the start," she says. "That lack of serious competition gives companies a de facto monopoly, which can lead to deals like this one. Philadelphia should be a shining star in the media game, but so far it’s been a black eye."

Not everyone shares Coates’ cynicism, though.

Edward Nelling, a Drexel University finance professor, says that even if the deal goes through, the average Philadelphian probably wouldn’t likely notice. "The impact for taxpayers is not significant, unless the deal somehow turns out to be a loser for Comcast," Nelling says.

And how could the deal be a loser?

"It could be a loser if Comcast is so desperate to have Disney that they restructure their bid at a price they can’t afford," says Nelling. "They could find themselves in over their heads, and have to seek other revenue, like maybe raising their cable rates. I don’t think that will happen, though."

On the upside, Nelling says, the acquisition could increase the cable offerings without increasing the costs. In other words, the possibility exists that Comcast cable subscribers could get more channels for the same rate. But now that the deal is squashed, at least temporarily, what’s next?

"Comcast could come back with a counteroffer, but those synergies that made the company attractive at one price may make it a liability at a higher price," he says. "The stand-alone value for a company is certainly different from the merger value.Ö But in the end, it’s like selling your car. No matter how good a shape it’s in, or how much sentimental attachment you have to it, in the end, your car is only worth as much as a buyer is willing to pay. "

At Monday’s meeting, Disney’s board also reaffirmed its confidence in Eisner, who may well need that vote of confidence when he comes to town. By then, Philadelphia will definitely be hostile territory. On his website, www.savedisney.com, the renegade heir to the Mickey Mouse empire invites one and all to the Save Disney Reception at the Loews Hotel on March 2, the day before the shareholder’s meeting a couple of blocks away.

"We intend to tell those who attend why we believe they should join us in voting no on the election of the board, and why we are seeking to replace Michael Eisner as the company’s CEO," the website says, which goes on to accuse the company of providing shareholders with "a lot of fluff, but not much substance."

Eisner hasn’t released an official statement on the Roy Disney angle, and he doesn’t have to, at least until next month, when Philly could become the site of Eisner’s Last Stand.