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Disney's new tomorrowland: ABC

Published Aug. 1, 1995|Updated Oct. 4, 2005

Walt Disney Co. has vaulted to the front ranks of media and entertainment companies Monday by striking a $19-billion deal to buy CapitalCities/ABC, owner of the nation's leading TV network.

In one move, Disney would become the largest among the handful of global entertainment goliaths such as Time Warner and Rupert Murdoch's News Corp., which in the last five years have invested in virtually every major corner of the media business.

The deal, negotiated in unusual secrecy over the past eight days, would create a company with annual revenue of $16.5-billion. It would bring together the owner of the world's most popular amusement parks, a major movie studio, the Disney Channel and the film Pocahontas with a company that owns 8 TV stations, the ESPN cable network and ABC, which airs the most widely watched entertainment and news programing in America.

"This was the right time and right place to do this," said Disney chief executive Michael Eisner, who would preside over the combined company. "I'm optimistic that one (plus) one adds up to four."

Eisner, 53, is a former head of programing at ABC.

The deal, approved by both companies' boards, still must be approved by shareholders and regulators. Eisner and CapitalCities chairman Thomas Murphy predicted Monday that it would meet little opposition from antitrust regulators, because the two regulators, because the two companies have few overlapping businesses.

The deal comes as Congress is preparing to vote on legislation that would loosen restrictions that now limit the number of media operations one company can own.

The agreement generated some criticism because it might trigger more buyouts and mergers.

"The marketplace is receiving a green light from Congress to consolidate in a manner that is dangerous to the development of multimedia competition," said Gene Kimmelman, co-director of the Consumers Union in Washington.

Wall Street investors and Hollywood executives were caught completely off guard Monday morning by news of the deal, the second-largest in the United States after the $25-billion buyout of RJR Nabisco in 1989. Most business people have been anticipating the sale of a TV network, but attention has been focused on CBS, which is in talks with Westinghouse Electric Corp. about a $5-billion sale.

Besides the network and its cable properties, Capital Cities/ABC also owns several large newspapers, including the Fort Worth Star-Telegram and the Kansas City Star.

"What's the impact? Who the hell knows?" said Arthur Brisbane, the Star's vice president and editor. "Everyone at the newspaper is eager to learn more . . . It's just plain disconcerting to know that a new layer of leadership will be arriving."

Dismissed only a few years ago as dinosaurs in a world of ever-expanding information options _ cable, satellite and now on-line services _ broadcast networks and television stations have become the glittering jewels of the media business. Even though the networks' prime-time share of the national TV audiences has slipped from more than 90 percent to just under 60 percent in the past 15 years, stations affiliated with ABC, NBC and CBS still command the biggest audiences of any medium.

That relatively large hold on what TV industry people call "eyeballs" has made the networks increasingly valuable to mass-market advertisers. This spring, sponsors spent a record $5.4-billion for air time on the new fall programs carried by the Big Three and Fox.

For major producers such as Disney _ which creates ABC's top ranked Home Improvement _ owning a network is more important now than ever.

An obscure federal regulation that has prevented the networks from creating or owning most of their popular prime-time programs _ in effect, from being both producer and distributor of a show _ is due to expire in November after 25 years.

The demise of the so-called financial interest and syndication rule will permit the networks to produce and sell programs themselves. This is potentially devastating to Hollywood's long domination of TV production.

"If ever a combination in the media makes sense, this one does," said industry analyst Barry Kaplan of securities firm Goldman Sachs & Co.

"This enhances the content of ABC and their cable networks, and with the demise of (the financial rules) Disney has a place" for its programs.

Viewers won't notice the change of ownership immediately, according to Eisner and Murphy. Eventually, however, they said more Disney-made children's programs would find their way onto ABC's afternoon and Saturday morning schedules.

The programs would be cross-promoted with the Disney cable channel, said Eisner.

To complete the deal, Disney would pay $65 per share in cash, or a total of $10-billion, to CapitalCities' shareholders, plus one share of Disney stock.

Both companies saw their stock soar on the news Monday, with Disney rising $1.25 to close at $58.62{ per share and CapitalCities going up $20.12{ to close at $116.25.

The news blackout on the deal was such that CapitalCities shares declined slightly in value in trading on Friday, indicating that there were no early leaks.

_ Information from the Washington Post, Knight-Ridder Newspapers and Associated Press was used in this report.

Shaking up the entertainment world

Walt Disney Co. announced Monday that it will buy Capital Cities / ABC.

The companies

Combined annual revenues in 1994: $16.5-billion

Disney

Film division

Television division: 58 hours a week of network and syndicated shows, including "Home Improvement" and "Ellen" on ABC.

Disney Channel: Cable television

Theme parks: Disneyland, Walt Disney World, Disneyland Paris (39%), Tokyo Disneyland (royalties)

Disney stores: 400 worldwide

Publishes books, magazines, music

ABC

ABC Television Network: 225 affiliated stations

Eight television stations, 21 radio stations

ESPN (80%), Lifetime Television (50%), A&E Television Networks (37.5%)

Publishes seven daily newspapers (including the Kansas City Star), weeklies, shopping guides, specialty books and magazines.

SOURCE: Capital Cities / ABC; research by PAT CARR

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