Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, August 1, 1995 TAG: 9508010052
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: Bloomberg Business News
DATELINE: BURBANK, CALIF. LENGTH: Long
Walt Disney Co.'s surprise announcement Monday that it will buy Capital Cities/ABC Inc. for $19 billion combines the world's leader in fantasy entertainment with the No. 1 U.S. television network.
The purchase extends Disney into every household in the U.S. by adding Capital Cities's television and radio networks, cable networks such as ESPN, as well as magazines and newspapers. That builds on Disney's 73-year-old empire that spans one of Hollywood's biggest movie and TV studios, theme parks and professional sports teams.
For Disney Chairman and Chief Executive Michael Eisner, who a year ago was faced with the loss of key managers and critical concerns about his health, it's the culmination of a decade-long vision to transform Disney from a one-dimensional maker of animated films into the world's largest entertainment company.
``Imagine promoting a Disney sports movie like `Mighty Ducks' on ESPN, or ABC's `Grace Under Fire' at Disneyland,'' said analyst Paul Marsh of NatWest Securities Corp. ``Imagine creating the world's largest media company, with $4 billion in cash flow, while remaining fairly unleveraged. That's what we're looking at.''
The acquisition would be the second-largest in U.S. history behind the $25 billion purchase of RJR Nabisco Inc. by Kohlberg Kravis Roberts & Co. in 1989.
Disney's transaction values each Capital Cities share of common stock at about $122.38, based on Friday's closing price for Disney - a premium of more than 27 percent for investors. Shares of New York-based Capital Cities rose by $20.121/2 a share on Monday, closing at $116.25. Disney stock closed at $58.621/2, up $1.25 a share. Both stocks are traded on the New York Stock Exchange.
Capital Cities shareholders will be able to exchange their stock for one share of Disney common stock and $65 in cash; they may also be able to exchange their shares for all cash or all Disney stock as circumstances allow.
Eisner will head the company. Capital Cities Chairman and CEO Thomas Murphy will relinquish his title and join Disney's board, while Robert Iger will continue as president of Capital Cities.
The boards of both companies approved the transaction.
Investors gave the acquisition rave reviews.
``It's a mind-blowing transaction because of the size and the global concept,'' said John Furth, chairman of Warburg Pincus Counsellors, an investment firm that owned about 1.6 million Disney shares and 239,100 Capital Cities shares.
While most media companies specialize in either distribution or production, Disney will have the power to do both on a worldwide scale.
``This is the first media company that does it all,'' said Gordon Rich, managing director at CS First Boston.
Playing matchmaker in the marriage was Warren Buffett, who Forbes magazine lists as the second-richest man in the world and is Capital Cities's largest shareholder at 20 million shares.
Eisner was attending an annual Sun Valley, Idaho, media conference two weeks ago when he bumped into Buffett.
``You think ABC is still for sale?'' Eisner said he asked Buffett. The billionaire from Nebraska told Eisner to talk to Murphy, then went a step further and invited Eisner to a picnic with Murphy.
Monday, Buffett said ``this deal makes more sense than any I've ever seen with the possible exception of Cap Cities and ABC'' in 1986.
If all shareholders take the basic stock swap, Buffett would make $1.3 billion in cash and own a 2.92 percent stake in Disney.
The timing was right for Disney, as well. The company needs to borrow about $10 billion to make the acquisition, and declining interest rates made the financing especially attractive, said Stephen Bollenbach, Disney's chief financial officer.
The move also comes as a peremptory strike against any entertainment rivals who planned to bid for NBC or CBS, the No. 2 and 3 networks. Westinghouse Electric Corp. is expected to announce an offer of $81 a share for CBS this week, and there has been speculation that General Electric Co. was shopping its NBC unit.
Jerry Heilman, general manager of WSET-TV (Channel 13), the ABC affiliate in the Roanoke-Lynchburg market, said he doubts the acquisition will have any short-term effects on his station or the network.
He believes the long-term prospects are "exciting," though, and that the merger is evidence there is "plenty of life yet for the big TV networks."
A few years ago, some broadcast industry analysts predicted the demise of at least one of the big-three TV networks in the face of competition from cable.
Since then, Heilman pointed out, rather than seeing a network die, a fourth network - Fox - has become a force in the national marketplace and two others - Paramount and Warner Brothers - have been initiated.
Staff writer Cody Lowe contributed information to this story.
by CNB