Thursday, April 29, 2004

Comcast out of picture, but Disney must refocus

Challenge is to deliver promised 40% growth in earnings

By Gary Gentile
The Associated Press

LOS ANGELES - The Wednesday withdrawal of Comcast Corp.'s takeover bid for the Walt Disney Co. removes a major source of distraction for Disney and strengthens the position of embattled chief executive Michael Eisner.

Despite months of criticism from two former Disney board members, echoed by Comcast executives when they launched their bid, Eisner and his senior managers remain in control.

That's evidenced by a strong statement of support from Disney's board late Tuesday that helped seal the cable giant's decision to withdraw.

"This is probably one of the better days of the year for Mr. Eisner," Harold Vogel of Vogel Capital Management said Wednesday. "He undoubtedly must feel more secure."

Disney's board had remained steadfast in its rejection of Comcast's bid, saying the media giant was better off on its own. Within days of Comcast's Feb. 11 offer, initially valued at about $54 billion, Disney's board dismissed the bid as too low.

Disney stock had risen since then, buoyed by the expectation that Comcast would sweeten its bid. The shares fell slightly Wednesday on the news of Comcast's withdrawal, ending 23 cents lower at $23.95.

Comcast's shares rose 23 cents to $30.20. Moving on, the cable company said it would now look for other growth opportunities, including bankrupt Adelphia Communications Corp., and go ahead with a previously announced $1 billion stock repurchase program sidelined while the Disney bid was pending.

With Comcast out of the picture, Disney's challenge is to deliver the promised 40 percent growth in earnings per share this year and show meaningful progress in fixing problems in its animation unit and ABC Television network, analysts said.

"I think we're returning now to questions of fundamentals," said Tom Wolzien, an analyst with Sanford C. Bernstein & Co.

Disney reports second-quarter earnings May 12. Analysts expect to see continued strong results from its theme parks and cable TV channels, such as ESPN.

Improvements in those areas are expected to be strong enough to make up for weakness at ABC and Disney's film studio, which has stumbled recently with disappointments such as The Alamo and Home on the Range.

"That will allow Disney to breathe a bit easier," said Janna Sampson, director of portfolio management at Oakbrook Investments. "They won't have several businesses misfiring at the same time."

Last week, Disney reshuffled its management at ABC in an effort to improve the ratings at the fourth-place network.

One of the biggest questions remaining for Disney is whether Eisner will remain past the expiration of his contract in 2006. Disney's board met in executive session, without Disney management, this week to discuss possible successors for Eisner and other top executives.

Eisner and the company remain under some pressure from dissident board members Stanley Gold and Roy E. Disney, who resigned last fall and have been campaigning for Eisner's firing.

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