Originally created 05/03/04

Disney strengthened by Comcast withdrawal

LOS ANGELES -- The withdrawal of Comcast Corp.'s bid to take over The Walt Disney Co. removes a major distraction for the media giant and strengthens the position of chief executive Michael Eisner, analysts say.

Despite months of withering criticism from two ex-Disney board members, echoed by Comcast executives when they launched their bid on Feb. 11, Eisner and his senior managers remain firmly in control of the company. A strong statement of support for them from Disney's board late Tuesday helped seal Comcast's decision to withdraw, which was announced Wednesday.

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

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

Disney stock has risen since then, buoyed by the expectation that Comcast would sweeten its bid. Disney shares dropped slightly on the news of Comcast's withdrawal.

Analysts said Disney's challenge now 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 the ABC Television network.

"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 television channels, including 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 such disappointments 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, now the fourth-place network.

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

The issue is expected to be discussed when representatives from large state pension funds meet with Disney board members next month. Those funds joined with other shareholders to withhold 45 percent of shares voted for Eisner's re-election to the board at Disney's annual meeting.

He 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.

Their effort has since lost much of its momentum and analysts suggested that the company's good performance, combined with the removal of the threat from Comcast, would slow their anti-Eisner campaign.

Still, they persist. "New leadership is the best way to improve value for the Disney shareholders," the two said in a statement Wednesday.

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