The Walt Disney Company, the creator of Mickey Mouse and other related characters was started in 1923 by Walter Elias Disney and his brother Roy. The company released the first ever full length animated feature film Snow White and the Seven Dwarfs in 1937 and is now the world wide leader in feature animations. Today the company has investments in cartoons, animated films, theme parks, television stations, movie studios, record labels, and sports clubs.
At the time of the merger, Disney a publicly traded company had total revenues of $12.1 billion resulting in net profits of $1.3 billion. At that time, the company was very cash rich and needed to find new avenues for investment to prevent being taken over. Disney found a perfect match in Capital Cities the owners of ABC; which was also a publicly traded company.
ABC (The American Broadcasting Corporation) was formed in 1943 when NBC was forced to sell one of its radio networks (the blue network) by the Federal Commission for Communication (FCC). The network diversified into television in 1948. Capital Cities bought the network in 1985 for $3.5 billion and positioned ABC as a leader in financial news reporting. At the time of ABCs acquisition by Disney; Capital Cities/ABC owned 224 affiliated stations, 10 TV stations, the ABC Radio Networks providing content to 3,400 radio stations and ESPN (the market leader in cable sports channels). The company also had minority interests in 6 European TV, 7 daily papers and over 100 periodicals.
In a joint statement, the companies stated that "the merged company will create tremendous value for shareholders by taking full advantage of the complementary strengths of each organisation".
Disney planned to use ABC's extensive distribution network to reach a wider audience thereby gaining a competitive advantage.
There were large economies of scale to be gained from the merger through the consolidation of overlapping functions like advertising, research, casting etc.
Disney hoped to reduce the money it spent on distributors who served as middlemen between the company and its audience; while ABC will benefit by having access to a wide range of content at optimal prices.
The merger took place at a time when there was a trend towards consolidation in the entertainment industry. Acquisitions and alliances were being driven by new technologies. The deregulation of cable prices and the passing of a bill by congress which allowed one company to own television stations reaching 35% of US households (a jump up from 25%) and a modification to an existing bill which now allowed a company to own cable stations, T.V. stations, newspapers and telephone companies in one market led to a flurry of mergers and partnerships. The also merger happened to occur at a time when Michael Eisner the CEO of Disney needed to consolidate his position as CEO of Disney.
The merger resulted in Capital Cities becoming a fully owned subsidiary of the Walt Disney Company. Disney did not make any major changes to Capital Cities' management team. Robert Iger was retained as the President of ABC while Thomas Murphy relinquished his post as chairman of Capital Cities to become a director in the Walt Disney Company.
Disney underwent some internal re-structuring and re-alignment in order to optimally group its extensive holdings. This re-structuring resulted in all cable channels ABC management. Disney's Buena Vista T.V. and its offshore TV affiliations as well as Disney T.V. International were also grouped under the newly renamed ABC, Inc. While all video and interactive operations including those of ABC were now being run by Disney...