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Comcast’s Media Powerhouse Ambitions Hinge On CEO Roberts

February 2004

Thursday February 12, 3:25 AM

Comcast's Media Powerhouse Ambitions Hinge On CEO Roberts

By Janet Whitman

NEW YORK (Dow Jones)--Brian Roberts, chief executive of Comcast Corp. (CMCSA, CMCSK), has taken the next step to fulfill his grand ambition of creating a media powerhouse by offering $66 billion to buy entertainment giant Walt Disney Co. (DIS).

Based on the track record of past megamergers in the media world, Roberts has his work cut out for him.

Consider America Online's botched plan to transform the media landscape by acquiring "old media" company Time Warner Inc. (TWX). Vivendi Universal SA's (V) attempt to marry content and distribution through an acquisition binge met with a similar fate.

But a combination of Comcast, the largest cable operator in the U.S., and Disney, owner of animation studios, theme parks and broadcast network ABC, stands a better chance of success than those bold, transformational deals, media bankers said.

Unlike AOL and Time Warner, for example, Disney and Comcast have a lot in common. Both have diversified media and entertainment assets.

Another important advantage, also unlike the AOL-Time Warner merger, is that the deal is a takeover, not a merger of equals, bankers said. That puts Roberts squarely in charge.

"This deal is very different from AOL Time Warner," said Ken Marlin, founder and managing partner of Marlin & Associates, a media investment banking boutique. "For the AOL deal to work, the concept was that they were going to take a large, stodgy print media company and somehow turn it into a fast-moving, Internet, high-growth play. It was a strategy that was probably flawed from the beginning, from a cultural standpoint and a logistics standpoint."

Comcast, on the other hand, wouldn't be looking to impose a new culture on Disney, because their cultures have a lot in common, he added.

"This is not a case of an upstart with a high-flying stock price using that stock to take over an old-line company," Marlin said, referring to AOL's blockbuster bid for Time Warner at the height of the stock-market boom. "It's a question of a very serious management team and a serious company attempting a very large takeover."

Fewer Synergies Than AT&T Cable Acquisition

But by no means will the deal, if accepted by Disney shareholders, be a slam-dunk.

It has been likened to News Corp.'s (NWS) recent acquisition of satellite TV operator DirecTV, a deal that combines News Corp.'s content with DirecTV's distribution platform.

But News Corp. CEO Rupert Murdoch already had a strong track record of melding content and distribution in Europe and Asia.

Comcast's Roberts has yet to prove himself there, said Jonathan Knee, media banker at boutique advisory firm Evercore Partners.

"Comcast has demonstrated an extraordinary ability to run cable systems efficiently, but they do not have a track record of managing businesses in the industries that most of Disney's assets are in," said Knee, who also is a media-merger professor in Columbia University's business school.

Compared to Comcast's acquisition of AT&T Corp.'s (T) cable assets, an acquisition of Disney would pose much greater integration challenges because they have far fewer overlapping assets.

The relative lack of synergies is reflected in the slim 10% premium Comcast offered Disney, said Knee.

"The strategic case for the combination is not overwhelming," he said. "They will need to do a much better job not only articulating the strategic rationale, but also then executing it."

Still, having one person running the show will a big advantage in that regard. "With AOL, there was ambiguity about who was in charge, but if Comcast buys Disney there will be no question: Roberts will be in charge."

Copyright © 2004 Dow Jones & Company Inc. All rights reserved.

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