Magazine article Editor & Publisher

Disney Enters News Business

Magazine article Editor & Publisher

Disney Enters News Business

Article excerpt

WARREN BUFFET HAS done it again: brought together two media giants in a breathtaking deal to create a more vast global information octopus with tentacles in several media.

The marriage, linking Walt Disney Co. and Capital Cities/ABC Inc., will form the nation's biggest media company, a sprawling, $17-billion-a-year behemoth that is being hailed as a new paradigm for information businesses in an age of consolidating media.

Buffet -- at the outset the owner of 13% of Capital Cities/ABC stock worth $2 billion -- played the matchmaker for Walt Disney's $19 billion acquisition of Cap Cities. The deal is expected to close early next year.

Not coincidentally, the transaction also enriches Buffet's already vast fortune, estimated at nearly $12.8 billion, but still leaves the Omaha investor No. 2 on the nation's rich list, behind Microsoft chairman Bill Gates and his $13.4 billion fortune.

The Disney deal dwarfs the merger in which Buffet helped finance Capital Cities Communications' $3.5 billion acquisition of ABC in 1986. Two years after that deal, the three million shares Buffet received for putting up $517 million for the purchase had more than doubled in value to over $1 billion.

"I do not have blanket enthusiasm for all mergers," Buffett said when the Disney agreement was announced on July 31.

"This deal makes more sense than any other I have seen except for the Cap Cities-ABC deal. It's a merger of the No. 1 content company with the No. 1 distribution company," he said, referring to Disney and Cap Cities, respectively.

While contemplated in general terms for years, the deal -- the nation's second largest merger after Kolberg, Kravis, Roberts' $25 billion acquisition of RJR Nabisco in 1988 -- came together in eight days after Buffett happened onto Disney chairman Michael Eisner at a media conference in Sun Valley, Idaho, and arranged a meeting with Cap Cities chairman Thomas Murphy.

News of the agreement, approved by both boards, sent Cap Cities stock price soaring more than $20 higher to $116 a share, and Disney stock up more than $1, to nearly $59 a share, by day's end.

For Buffett, whose Omaha-based Berkshire Hathaway Inc. owns 20 million Cap Cities shares, the day increased his holdings by some $400 million.

The offer calls for Disney to pay $65 in cash and one share of Disney stock for every share of Cap Cities, with limited flexibility for Cap Cities shareholders to adjust the cash mix.

For Berkshire Hathaway, that translates into $1.3 billion in cash, plus Disney shares worth $1.2 billion.

Buffet said his only regret was having sold 10 million Cap Cities shares, at about $63 each, in a 1993 stock buyback, before the company's 10-for-1 stock split later that year.

Disney, with annual revenues over $10 billion a year, is acquiring Cap Cities' more than $6 billion in yearly revenue.

"I am totally optimistic that one and one will add up to four here," Eisner said. Mainly Disney gets an outlet for its programming and a vehicle to promote its entertainment enterprises.

Besides picking up the nation's top rated network, Disney gets 80% of the cable sports network ESPN, stakes in Arts & Entertainment and Lifetime channels, 20 radio stations, eight TV stations, a radio network, foreign TV investments, and publishing operations generating revenues over $1 billion a year -- about one-tenth of Cap Cities' gross. …

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