Comcast Bid Gains on Disney Film Woes

Walt Disney Co.’s fight to fend off unwanted suitor Comcast Corp. suffered a setback Monday, as worries about Disney box-office duds drove its shares down while Comcast’s stock rose to its highest level in more than a month.

As the share prices diverged, the difference between the value of Comcast’s stock-swap offer and Disney’s market price fell to its narrowest since the cable giant made its bid public in mid-February.

Disney dropped 55 cents, or 2.1%, to $25.70 on the New York Stock Exchange after several analysts warned that the company could face steep write-offs for recent film disappointments, including “The Alamo,” which took in just $9.2 million during its opening weekend.

Comcast shares, by contrast, jumped $1.10, or 3.8%, to $30.34 on Nasdaq after Banc of America Securities raised its rating on the stock to “buy” from “neutral.”

At Monday’s closing price, Comcast’s offer of 0.78 share for each Disney share was worth $23.66 a share to Disney shareowners. That was 7.9% below Disney’s stock price, but the gap had been as much as 16% in mid-February and exceeded 12% last week.

The wider price gulf had given Disney Chief Executive Michael Eisner and his team more breathing room. The company’s board rejected the Comcast bid as too low and investors, supporting the stock at higher levels, appeared to be throwing their weight behind management.

But if the stock continues to inch closer to the bid’s value, analysts said, the advantage could shift to Comcast -- particularly if Disney management appeared to be stumbling in delivering a promised earnings turnaround.

On Monday, Disney sought to dispel concerns about weaker earnings because of “The Alamo” and other film releases that haven’t lived up to expectations.

Without commenting on “The Alamo,” Disney’s chief financial officer, Thomas Staggs, said in a statement late in the day that earnings from continuing operations could grow more than 40% this year from last, “assuming a continuation of the favorable economic conditions and trends we’re seeing.”

Disney executives had previously forecast 30% growth.

“Given the performance we’re seeing in our businesses, we remain confident in our ability to deliver attractive growth in our earnings,” Staggs said.

His statement followed downward earnings revisions by a number of Wall Street analysts.

Jordan Rohan, an analyst at Schwab Soundview Capital Markets, said he expected write-downs related to the studio unit to cut profit in the latest fiscal quarter to 22 cents a share from a previous estimate of 25 cents.

Disney could write off as much as $80 million on “The Alamo” alone, as well as $70 million combined for the animated film “Home on the Range” and the Coen brothers film “The Ladykillers,” Rohan said.

“There will be further pressure on CEO Eisner due to the recent performance at the box office,” Rohan said. Eisner was stripped of his job as Disney chairman last month after shareholders delivered a 43% vote of no-confidence at the annual meeting.

“The Alamo” cost more than $100 million to make.

Rohan said the studio unit’s woes could be mitigated somewhat by strong international home video sales from the release of last year’s hit movie “Finding Nemo.”

Richard Greenfield, an analyst at Fulcrum Global Partners, said Disney could take a $100-million write-down as a result of the poor box-office returns from “The Alamo,” “Home on the Range” and “Hidalgo.”

Yet many analysts said Disney probably remained on track to meet its earnings targets this year because of financial gains at ESPN, its theme parks and the home video unit.

Still, Greenfield speculated that a big write-down could prod the Disney board to enter into discussions with Comcast.

Other analysts, however, said the odds of Comcast’s winning Disney hadn’t improved, even though the gap between the value of Comcast’s bid and Disney’s stock price has narrowed.

In fact, Banc of America Securities’ decision Monday to upgrade Comcast was based partly on expectations that the company would abandon its bid, said BofA analyst Douglas Shapiro.

The stock price action in recent days “is a shorter battle in a longer war,” said Charles Sloan, an analyst at Chicago-based Holland Capital Management, a Comcast shareholder.