Walt Disney Co. agreed Monday to purchase Capital Cities/ABC for $19 billion in a deal that swamps all but one in American corporate history. The merger will create the world’s largest entertainment empire.
Analysts said the deal speaks volumes about the revolution under way in the media industry. In this brave new corporate world, bigger inevitably is viewed as better, and the race to be biggest is being run by titans such as Ted Turner and Rupert Murdoch, corporate giants such as the “Baby Bells” and high-tech visionaries such as Microsoft Corp.’s Bill Gates.
Jill Krutick, an analyst who tracks Disney for Smith Barney, said it is hard to imagine more complementary sets of corporate assets than those of Disney and Capital Cities.
“You’re creating a programming giant,” she said. “There are an infinite number of ways the companies can leverage their products with one another.”
The merger, engineered in less than a week, is larger than all but the leveraged buyout of RJR Nabisco by Kohlberg Kravis Roberts & Co. in 1989 for $25 billion. But the similarities largely end there.
The takeover of RJR Nabisco was a bruising battle that spawned the national best seller “Barbarians at the Gate.”
In contrast, the Disney deal was capped when its chairman, Michael Eisner, proposed it to Capital Cities Chairman Thomas Murphy when the two passed on a Sun Valley, Idaho, sidewalk.
“He simply looked at me and said ‘OK,”’ Eisner said on ABC’s “Good Morning America” program. The transaction was so private that Wall Street and the leading financial media were taken by surprise when it was unveiled Monday morning.
Eisner said the two men casually had discussed joining forces during the last three years, but got serious at a recent investment seminar held annually by Allen & Co. In 1993, that seminar was where Blockbuster Entertainment founder H. Wayne Huizenga first met Viacom Chairman Sumner Redstone, who eventually purchased the giant video chain.
Investors and analysts were wildly enthusiastic about the Disney deal.
Shares of Capital Cities soared $20.12 per share Monday, closing at $116.25. Disney shares went to $58.87, up $1.25.
The transaction calls for each Capital Cities shareholder to receive one Disney share plus $65 in cash. Disney will be the surviving firm, and Eisner will be chairman of the combined entity.
“The merger positions us for substantial growth worldwide and puts us in a strong competitive position in an industry which, by this transaction, we are helping to define,” Eisner said in a prepared statement. “The Walt Disney Company will now have more global outlets to provide the highest quality entertainment, news and sports programming.”
Indeed, the synergies between the two companies aren’t hard to spot.
Disney, a movie, TV and animation production powerhouse, has been rumored to be shopping for a television network for years. However, most of the speculation centered around CBS Inc., which is reportedly about to receive a $5 billion offer from Westinghouse Inc.
Capital Cities owns the ABC television network, providing a natural vehicle for Disney programming and promotion of its movies. Capital Cities also has extensive investments in international markets, particularly through controlling interest in cable properties such as ESPN, the sports network.
“I think with this combination, they’ll be hard to beat,” said Michael Schroeder, president of First International Asset Management, a Naples, Fla., investment adviser. Schroeder said it also calls into question the conventional wisdom that TV networks are dinosaurs in the age of cable, global markets and satellite transmissions. The reality is that TV networks remain hugely powerful and lucrative properties.
“Depending on how you assimilate everything, working Disney’s resources into that organization could make for a very powerful global force,” he said.
He said he wouldn’t be surprised if the NBC network, owned by General Electric Co., changes hands. “Everything’s for sale at a price,” he said.