Is Comcast poised to do another Disney?

By Yinka Adegoke -Analysis

NEW YORK (Reuters) - Comcast Corp has been hoarding cash to better manage its balance sheet but investors worry that it could be building a war chest for a splashy acquisition similar to its failed 2004 bid for Walt Disney Co.

Investors value shares of Comcast at close to historical lows, as the top U.S. cable service provider's conservative balance sheet strategy has rekindled speculation that it wants to be a major player in the media content market.

"When I talk to other investors, it's usually the first thing they ask about," said Chris Marangi, an analyst at Gabelli Co, which is long-term shareholder of Comcast. "They always bring up the 2004 bid Comcast made for Disney."

Comcast Chief Executive Brian Roberts made an audacious $54 billion bid for Disney five years ago, and the once traditional, family-run cable company has never quite shaken off the image of a media wannabe.

Investors worry that Comcast might use growing cash reserves to go after names such as Viacom Inc, owner of MTV Networks and Paramount film studio, or Time Warner Inc, which owns CNN, HBO and Warner Bros despite little evidence of such a move, said analysts. Disney is no longer seen as a target.

They say such concerns are behind the 11 percent drop in Comcast's stock this year because not many big media deals have a history of boosting shareholder value. In comparison, the S&P 500 Index has risen 12 percent in the year to date.

"There is a wariness with investors about what Comcast is going to do," said Tuna Amobi, an analyst at Standard & Poor's.

On the face of it, a large bid for content seems unlikely given the slimmed-down trend in media. Time Warner this year spun off its cable service unit, purportedly killing the myth that content and distribution need to be combined.

Yet even the executive who fended off the Disney bid still thinks Comcast could buy a big content play. In an interview with Broadcasting & Cable magazine last week, former Disney CEO Michael Eisner said of Comcast: "They may want to recapture their dreams of going after Disney, but not with Disney specifically.

"I am sure Brian Roberts and Steve Burke (COO) have Time Warner high on their computer screens."

Eisner added that he had "zero information" on such a deal but it was enough evidence for some investors.

As Collins Stewart analyst Thomas Eagan said: "With Comcast, the concern for acquisition risk doesn't have to be logical."

Comcast declined to comment on its M&A strategy. The company is still more widely expected to be interested in smaller cable networks acquisitions than a mega-merger.

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Analysts said uncertainty surrounding Comcast's M&A strategy coupled with an earlier decision to slow the rate at which it returns cash to investors have hurt its valuation.