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Comcast Makes Surprise Bid to Buy Disney

With cable TV giant Comcast Corp. stunning the entertainment world with its proposed offer on Wednesday, Feb. 11, 2004, to buy the Walt Disney Co. for an estimated stock value of $66 billion, the industry was abuzz with speculation that Disney chairman/ceo Michael Eisner's days are now numbered. Especially in light of the fact that Institutional Shareholder Services, a leading provider of proxy voting and corporate governance services, also recommended on Wednesday that Disney shareholders withhold their vote for Eisner's reelection to the board of directors.

It's all good news for Roy Disney and Stanley Gold in their board revolt, with word now spreading that Eisner recently laid out a succession plan.

After being rebuffed by Eisner earlier this week, Comcast went public with its proposal to merge the two companies in a tax-free transaction. The combination would create one of the world's leading entertainment and communications companies with an unparalleled distribution platform and an extraordinary portfolio of content assets. The new company would have a presence in all of the nation's top 25 markets, and would propel broadband forward, expanding current services and inspiring new ones.

"This is a unique opportunity for all shareholders of Comcast and Disney to create a new leader of the entertainment and communications industry," said Brian L. Roberts, president and ceo of Comcast. "Not only would this merger create significant shareholder value, but it would also position the combined company to compete vigorously with other entertainment and communications companies, including newly created integrated distribution/content providers.

"Our management team has a proven track record of successful integration of our merger partners. We are prepared, ready and excited to greet the opportunities and challenges the proposed combination presents in order to deliver substantial value to shareholders of the new combined company."

"I know Disney's businesses very well," added Steve Burke, president of Comcast Cable, who previously served with Disney as president of ABC Broadcasting, president/coo of Euro Disney S.A. and founder of The Disney Stores. "And I am confident that when we put those great brands and programming assets together with our distribution, there will be significant opportunities to produce compelling returns for shareholders."

And, to juice things up, Comcast vowed to "reach out" to Pixar Animation Studios if its bid for Disney goes through. Analysts believe this could revive talks between Disney and Pixar that broke down on Jan. 29. Burke said that improving Disney's animation business would be central to Comcast's plans.

Eisner, who is attending a two-day investor conference at Disney World in Orlando, said the company was considering Comcast's bid. "We are on the road to recovery. We're doing well. All of our parks, our movies, our media networks are doing extremely well."

Terms of the proposed transaction are as follows:

* Comcast would issue 0.78 of a share of Comcast Class A voting common stock for each Disney share.

* Disney shareholders would receive a premium of over $5 billion, based on yesterday's closing prices, plus full participation in the combination benefits.

* Comcast's proposal values Disney at $66 billion (which includes assumption of $11.9 billion of Disney's net debt), offering a multiple of approximately 14x Disney's 2004 estimated EBITDA.

* Disney shareholders would own 42% of the combined company.

In a statement, Disney and Gold boasted that "the Comcast presentation today highlighted many of the same issues that we have raised for weeks with shareholders. The areas Comcast listed as needing improvement are basically the same ones we have highlighted -- animation, the theme parks, ABC and the ABC Family Channel.

"We have long maintained that the inherent value in Disney's assets has not been realized by current management and that this Board has failed to take the necessary steps to restore long-term shareholder value and to hold management accountable for its failures," Disney and Gold added. "We believe those failures have made Disney an attractive target for those that recognize, as we do, that with the right leadership the extremely valuable assets of Disney can be properly utilized to create lasting and significant value.

"Today's action by Comcast makes it more important than ever that shareholders send a message to management and the Board by withholding their votes on Michael Eisner, John Bryson, George Mitchell and Judith Estrin. Disney's shareholders deserve a board that looks at what is best for the company and its shareholders."

Moreover, Disney and Gold are extremely pleased with the ISS recommendation. "ISS' recommendation is an important independent validation of our campaign's primary theme that real change is needed in the Walt Disney Co. boardroom," Disney and Gold said. "With respect to recent changes in corporate governance practices at Disney, it is noteworthy that ISS said in its report that '[t]he withhold vote recommendation on Mr. Eisner is meant as a signal to try a little harder, not just on paper.' We agree with ISS' view that 'shareholders will be best served by cracking open the door to the boardroom.'"

Disney and Gold also believe it is important that shareholders take note that ISS points out in its report that:

'Based on a peer group of media, hotel, restaurant and leisure companies, the ratio of Net Operating Profits After Taxes to Invested Capital was below the lowest quartile for all [the last] five years.'

"This measure of financial performance spotlights the long-term deterioration of the Disney business under Mr. Eisner's leadership. We continue to believe there is a great deal of intrinsic value in the Company that is not being realized," they said.

The ISS report also states:

"At the end of the day, all roads lead back to Eisner," the ISS report continues. "For 20 years Disney's revolving door for board members and management has had one constant -- Mr. Eisner. The boardroom battles and management departures, which pre-date the Disney/Gold campaign, are disappointing, expensive, distracting, and not in the best interest of shareholders. If there were ever a case forseparating the roles of chairman and ceo, this company is the poster child."

"We couldn't agree more," Disney and Gold stated. "We urge shareholders to take heed of the ISS recommendation on Mr. Eisner by withholding their vote on his reelection to the Disney Board. We further urge that although not recommended in the ISS report shareholders also withhold their votes on the reelection of John Bryson, George Mitchell and Judith Estrin as directors of the Walt Disney Co."

Amid stronger than expected first quarter earnings on Wednesday due to terrific home entertainment sales from FINDING NEMO, PIRATES OF THE CARIBBEAN and FREAKY FRIDAY, Disney released the following statement regarding the ISS recommendation:

"While we welcome ISS' recommendations with respect to our non-management directors, we find its position inexplicable and unjustified with respect to Michael Eisner, since he led the very changes that resulted in a board dominated by independent directors. The Walt Disney Board exceeds the guidelines set by the NYSE with respect to corporate governance standards, and this would not have been possible without Michael Eisner's commitment to governance and transparency."

Disney reported net income of $688 million, or 33 cents per share, in the three months ended Dec. 31 compared to $36 million, or 2 cents per share, in the same period a year earlier

As part of the proposal, Comcast has noted the applicability of the FCC's current program access and program carriage rules to the combined company, which should address potential concerns that could be raised in the regulatory process. Those rules ensure that the combined company will continue to make all of its satellite-delivered national and regional cable networks available on a non-exclusive, non-discriminatory basis and that there will be no discrimination against unaffiliated programming services, all comparable to the undertakings made by News Corp. in its recent acquisition of DirecTV.

The excellent track record of Comcast's management is shown by its success in the acquisition of AT&T Broadband, which was twice the size of Comcast when acquired 15 months ago. Performance of the merged company has far exceeded initial margin improvement expectations. The combination has resulted in immediate reversal of basic subscriber loss and acceleration of system upgrades, as well as significant launches of new products and services such as video-on-demand and HDTV.

Comcast is being advised by Morgan Stanley, JPMorgan, Quadrangle Group and Rohatyn Associates. Davis Polk & Wardwell is the legal advisor to Comcast.

Comcast Corporation ( is principally involved in the development, management and operation of broadband cable networks and in the provision of programming content. The company is the largest cable company in the United States, serving more than 21 million cable subscribers. The Company's content businesses include majority ownership of Comcast Spectacor, Comcast SportsNet, E! Ent. Television, Style, The Golf Channel, Outdoor Life Network and G4.

Here is the full text of Comcast's letter sent to Disney:

February 11, 2004

Mr. Michael D. EisnerThe Walt Disney Company500 South Buena Vista StreetBurbank, California 91521

Dear Michael:

I am writing following our conversation earlier this week in which I proposed that we enter into discussions to merge Disney and Comcast to create a premier entertainment and communications company. It is unfortunate that you are not willing to do so. Given this, the only way for us to proceed is to make a public proposal directly to you and your Board.

We have a wonderful opportunity to create a company that combines distribution and content in a way that is far stronger and more valuable than either Disney or Comcast can be standing alone. To this end, we are proposing a tax-free stock for stock merger in which Comcast would issue 0.78 of a share of its Class A voting common stock for each share of Disney. This represents a premium of over $5 billion for your shareholders, based on yesterday's closing prices. Under our proposal, your shareholders would own approximately 42% of the combined company.

The combined company would be uniquely positioned to take advantage of an extraordinary collection of assets. Together, we would unite the country's premier cable provider with Disney's leading filmed entertainment, media networks and theme park properties. In addition to serving over 21 million cable subscribers, Comcast is also the country's largest high speed internet service provider with over 5 million subscribers. As you have expressed on several occasions, one of Disney's top priorities involves the aggressive pursuit of technological innovation that enhances how Disney's content is created and delivered. We believe this combination helps accelerate the realization of that goal-whether through existing distribution channels and technologies such as video-on-demand and broadband video streaming or through emerging technologies still in development-to the benefit of all our shareholders, customers and employees.

We believe that improvements in operating performance, business creation opportunities and other combination benefits will generate enormous value for the shareholders of both companies. Together, as an integrated distribution and content company, we will be best positioned to meet our respective competitive challenges.

We have a stable and respected management team with a great track record for creating shareholder value. In fact, our shares have consistently outperformed leading stock indices by significant margins, including the S&P 500 by a margin of more than 2 to 1 since Comcast went public in 1972.

The Comcast management team greatly appreciates and is highly respectful of the Disney heritage. We know that there are many talented executives at Disney who we envision would also play a key role in managing the combined company. We also would welcome directors from your Board joining our Board.

We have analyzed the issues associated with regulatory approval and are confident that all necessary approvals can be obtained in a timely fashion. Given the landscape that has evolved in our industry over the past few years, the creation of integrated content and distribution companies is essential to increasing the level of competition. The FCC's existing program access and program carriage rules ensure that the combined company will continue to make all of its satellite-delivered national and regional cable networks available on a non-exclusive, non-discriminatory basis and that there will be no discrimination against unaffiliated programming services, all consistent with the undertakings made by News Corp. in its recent acquisition of DirecTV.

We hope that the Disney Board will pursue the opportunity that this proposed combination presents to your shareholders.

Very truly yours,

Brian L. RobertsPresident and Chief Executive Officer