Maybe Ralph and Brian Roberts waited too long. A year ago, when Disney stock was mired in the teens, with the worst performance of any major entertainment issue, shareholders would have begged the Comcast founder and his CEO son to make an offer. But now, of course, Disney’s price is the main enemy of Comcast’s shocking bid. It’s just too high, in large part because, as disliked as CEO Michael Eisner is by just about everyone in Hollywood and on Wall Street, the son of a bitch has done a pretty good job with Disney in the past twelve months.
And that may be the sole reason why this fantastic deal, which makes so much sense and provides so much upside for both Comcast and Disney shareholders, doesn’t get done. The Robertses can’t afford to pay higher without surrendering control of their company to the Disney team. They would have to issue too many shares.
Logically, Michael Eisner and Brian Roberts should be sitting down right now, ahead of the Disney annual meeting in Philadelphia next week, figuring out how to get this deal done as soon as possible. Eisner should be saying to Roberts, “Look, you run the distribution, I’ll run the company, and in a couple of years you can run the whole damn thing.” In fact, it wouldn’t surprise me if that’s, ultimately, what occurs.
The problem is that Disney’s simply not doing poorly enough for Eisner to want to have that discussion, especially after the rude and balls-out way that the Robertses made the offer, on the morning of what was meant to be two beautiful days at Disney World, where Eisner had convened analysts to celebrate a pretty darned good quarter and year.
So what happens? It’s possible that nothing happens. Despite the fact that Eisner, in a fit of goo-goo governance six years ago, stripped Disney of all sorts of takeover protection, it’s almost impossible to get a hostile deal done in America these days. For a nation that was at one time the home of the most open and honest form of capitalism, we now allow takeover-target managements to just say no, and that’s pretty much the end of it. On paper, in fact, it would be easier for Disney to buy Comcast than for Comcast to buy Disney. Eisner could simply phone up his buddies at Microsoft—they just did a big digital-piracy deal together—get a $20 billion loan, and go hostile for Comcast, except the Robertses have too many votes to let that happen.
Why should the deal happen, though? For the same reason that everybody does just about everything in media these days: to try to keep up with Rupert Murdoch. Everyone from programming chieftains to cable operators now recognizes that Murdoch pulled off the deal of the century when he snuck in and bought Hughes Electronics, the nation’s largest satellite company. With one purchase, which could have been done by anyone with a little vision but was done only by Rupert, of course, News Corp. went from being extorted by thuggish cable operators to being the extorter, virtually daring the likes of Comcast to stop taking Fox programming. Murdoch can now afford to give every Comcast household a dish—that’s right—and install the darned thing for free, in any cable area that doesn’t cut News Corp. a better deal than it already has.
The Robertses know that all too well. They kept the Fox News Channel off their system longer than almost everyone, and, in retaliation, their households are the most logical targets of Murdoch’s free-dish program when it gets under way. Yep, Murdoch can give away the dishes to cable homes and make the money back in subscriptions in three years, a short period for that long-term thinker.
Which is why Comcast needs Disney so badly. It needs to be able to have some proprietary programming—read ESPN, not ABC—to make future dealings with Murdoch less one-sided, lest ABC find itself on DirecTV channel 143 and ESPN not found at all because of Fox Sports Net coverage.
If this deal doesn’t get done, Comcast will have to spend fortunes developing programming to put through its own pipe to compete with Murdoch’s production arm. Better just to develop and extend it from Disney’s studios, the way General Electric intends to do from Universal. So, should you be selling Disney now, betting that Eisner will frustrate the Robertses and keep running the company until he dies? Should you believe that Eisner will ultimately prove to be as entrenched as septuagenarians Maurice “Hank” Greenberg and Sumner Redstone, even though those titans actually built AIG and Viacom, respectively?
I’ve been a close observer of the Robertses ever since they rose from obscurity in my hometown of Philadelphia. As much as Eisner is always praised for his infighting abilities, Brian Roberts is both smarter and more ruthless than the Disney chief, even if he doesn’t look or act the part. (I have never heard a bad word whispered about Brian behind his back, but nobody even goes off the record anymore to dis Eisner; he’s that despised.)
I don’t think anything that has happened so far in the saga—the immediate Eisner rejection, the nonchalant dismissal of the bid, the cavalier way that Disney’s board backs its long-term underperforming helmsman—was unforeseen by the Robertses. Time is also on Comcast’s side—it can do nothing, and if Disney has so much as one bad quarter, shareholders will be clamoring for word that the Robertses are still interested in a deal. They, like Disney, have good relations with Microsoft (the software concern owns 100 million shares), and a deal spurred by Microsoft’s CEO, Steve Ballmer, and his $53 billion in cash that earns next to nothing, can’t be ruled out.
Given that the Robertses have most likely gamed things this far, you have to wonder if they don’t have something huge up their sleeve—a big block of Disney’s shareholders eager to dispose of Eisner, perhaps, or some Disney board members not owned by Eisner, although the latter would seem almost ludicrous given the systematic crushing of ex-boarders Roy Disney and Stanley Gold that Eisner just accomplished.
Without a hidden high card, right now it looks like the only thing that has really happened is Comcast has made its ESPN carriage negotiations with Disney a heck of a lot harder. And that’s why I have to believe that we’ve seen only the first salvo from the Comcast team. We always hear that you don’t bring a knife to a gunfight with guys like Eisner. The Robertses, however, bring Daisy Cutters and MOABs to virtually every scuffle, and I have to believe they’ve got hidden WMDs for this battle. My bet: The combination happens, and in a way where it looks like Eisner’s the winner. But Brian Roberts runs the combined company in the end.