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How Comcast Let the Mouse Get Away

By Ronald Grover Forget Brad Pitt's next movie or the Friends finale. The hottest story in the media world is How Brian Blew the Big One. That would be Brian as in Brian L. Roberts, the 44-year-old president and chief executive of Comcast (CMCSA). On Apr. 28 he announced that the cable giant was dropping its two-month-old, $48.4 billion bid to buy Walt Disney (DIS). "We have always been disciplined in our approach to acquisitions," Roberts said in making the announcement. "Being disciplined means knowing when it is time to walk away. That time is now."

That time, people are saying, was long ago. True, when the deal was first announced on Feb. 11, it was heralded as a brilliant move on Roberts' part. Disney and its then-Chairman and still-CEO Michael Eisner were seen as vulnerable. Roberts & Co., were offering Disney shareholders 0.78 of a Comcast share for each share in the TV, film, and theme-park giant. The offer valued Disney at around $66 billion, including its $11.9 billion in debt.

BUYBACK VS. TAKEOVER. Almost immediately, however, Disney's stock rose, and Comcast's fell. Wall Street either expected new terms or looked upon Comcast's bid as an admission that its future wasn't in cable but in content. Within days, Disney's board dismissed the offer. Not only had the $2.36 premium on Disney's stock disappeared but the offer now valued Disney at $3.60 less a share than the market valued it.

Roberts, while no slouch as a dealmaker, may have been a little out of his league in this venture. Indeed, he made two big mistakes.

The first was misreading his shareholders. They were far more interested in a $1 billion stock buyback that Comcast was offering than any takeover of Disney. "It's time to show us the money," Glenn Greenburg, managing director of Chieftain Capital Management, told this reporter not long after Comcast announced its offer for Disney. Greenburg clearly didn't want a part of an entertainment company that was then -- and is still -- being hobbled by a ratings-challenged ABC and anticipating a future without Pixar Animation (PIXR), the computer-animation studio that has created some of Disney's biggest hits.

The second mistake may have been more deadly. Roberts badly bungled what should have been delicate negotiations with the Disney board, a group whose assent and cooperation would have been crucial to making a deal happen. It came out in the press that Comcast was relying on "an intermediary" -- a corporate Deep Throat who supposedly had the ear of former Senator George Mitchell, then Disney's presiding board member. And Mitchell, according to the word that was filtering back to Comcast, was "having trouble with Eisner" and might be amenable to a deal, sources say.

NEW TARGETS? When that broke in the media, the Disney board circled the wagons, Mitchell was indignant, and any hope of dealing with the board evaporated. Indeed, some folks close to the board even say the eight independent members rallied around Eisner. A Comcast spokeswoman declined to comment on any of the strategic decisions relating to the Disney offer.

Also, Comcast apparently made a less-than-convincing case that it could run Disney better than Eisner and his team. True, Roberts employs some serious talent, including Steve Burke, the executive vice-president who's also president of Comcast's cable operation, a holding company that owns The Golf Channel, E! Entertainment, and the Philadelphia 76ers basketball team. It was assumed -- though never stated -- that Burke, a former Disney exec, would run Disney's cable unit. But analysts weren't sure Burke was quite up to the job.

Comcast could have increased its bid or made the deal a part-cash offer, but Roberts chose not to, saying Disney wasn't a "must buy." Now, he has clearly turned his attention elsewhere. Having just released strong first-quarter earnings that turned a year-ago loss into a $65 million profit, Roberts is resuming the $1 billion stock buyback.

And he's returning to what he knows best -- the cable business. He's hinting he might make a bid on all or parts of Adelphia, the scandal-plagued and bankrupt cable company with 5.4 million subscribers. (Comcast has more than 21 million subscribers.)

BOUNCING BACK. Ironically, Eisner -- the man whose seeming vulnerability helped spark the takeover attempt -- appears to have weathered rather nicely both the Comcast bid and a 45% shareholder vote of no confidence at Disney's annual meeting in March. True, that vote caused Eisner to surrender his post as chairman and gave rise to speculation that his days at Disney were numbered. But on Apr. 27, following a two-day strategic review, Disney's board gave the CEO a rousing pat on the back.

In a statement issued after the confab, it said it had "complete confidence in Michael Eisner, [President] Bob Iger, and the senior management team" and that it supported the crew's plans "to continue to drive long-term shareholder value."

Could Roberts and Comcast return for another bid? Maybe. Comcast saw its stock rise slightly, to just over $30, when it announced it was dropping the offer. Disney's fell slightly, to $23.95, meaning both shares are within 1% of where they were on Feb. 10 -- the day before Comcast launched its surprise bid. If he comes back, Roberts no doubt will rewrite the script of this failed first run. Grover is Los Angeles bureau chief for BusinessWeek. Follow his weekly Power Lunch column, only on BusinessWeek Online

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