DISNEY WEIGHS PUBLISHING SALE.

Byline: Dave McNary Daily News Staff Writer

Walt Disney Co. announced Tuesday that it might sell the newspapers and magazines it bought as part of its takeover of Capital Cities/ABC Inc. in a move that could fetch the entertainment giant as much as $2 billion.

Burbank-based Disney made the disclosure as part of a better-than-expected report on earnings for its first quarter ended Dec. 31, saying it planned to begin ``exploring its strategic options'' regarding the assets.

``The alternatives available to us include a sale of all or part of ABC's publishing assets, a tax-free spinoff to shareholders, asset swaps and retention of all or some of the assets,'' a Disney spokesman said.

Disney did not specify the reason for such a move but Wall Street trackers have expected Disney to shed the publications ever since it first announced the $19 billion deal for Capital Cities in August 1995. The major reason for the transaction, which was completed last February, was to give Disney better distribution for its movies and television shows.

The assets include The Kansas City Star, the Fort Worth Star-Telegram and eight other daily newspapers; Fairchild Publications, including Women's Wear Daily and trade publications; Chilton Co., which publishes 50 trade and business magazines; the Agricultural Publications Group, which includes newsletters and magazines; several medical journals; Los Angeles magazine; and the Institutional Investor financial newspaper.

Analysts have said the daily newspapers generate about half of the revenues in the group. They have estimated the group generated operating income of $200 million during the 1996 calendar year.

``The announcement is not a surprise,'' said analyst Linda Bannister of Edward D. Jones in St. Louis. ``It's been rumored for a long time.''

Bannister said the sales could bring Disney between $1.5 billion to $2 billion, depending partly on whether the assets are sold as a package or in individual pieces, which she described as the more likely scenario. Possible buyers include Gannett Co., Knight-Ridder Inc. and Dow Jones & Co., according to Bannister.

Other rumored bidders mentioned are Advance Publications, K-III Communications, Pearson PLC, Reed Elsevier PLC and Thomson Corp.

Disney's earnings rose to $748 million, or $1.09 a share, including a $135 million gain on the sale of Los Angeles TV station KCAL (Channel 9), a 32.6 percent increase over the year-earlier period, assuming completion of the ABC deal.

Without the KCAL sale, which was required for antitrust clearance in the Cap Cities deal, earnings increased 18.4 percent to $669 million, or 98 cents a share - 6 cents above First Call's consensus of analyst forecasts.

Revenues were up 6.6 percent to $6.28 billion from $5.89 billion.

Shares of Disney rose $1 to $72.625 a share Tuesday.

Operating profits surged 38 percent in broadcasting due to cost reductions, while theme park operating profits rose 21 percent, primarily due to better attendance at Walt Disney World. Creative content, which includes movies, home video and publishing, was up 10 percent due to strong domestic performances by ``Ransom,'' ``101 Dalmatians'' and ``The English Patient,'' along with the foreign releases of ``The Hunchback of Notre Dame'' and the ``Toy Story'' home video.

``It was a very strong quarter, particularly in theme parks,'' said Bannister, who has a ``buy'' rating on the stock and a 12-month target price in the low $80s.

Analyst Jessica Reif of Merrill Lynch & Co. raised her rating on Disney to medium-term ``accumulate'' from medium-term ``neutral'' and boosted her fiscal year profit estimate a nickel to $2.75 a share.

Disney also confirmed Tuesday that it had teamed up with Comcast Corp. to acquire control of E! Entertainment Television, the cable network behind ``Talk Soup'' and the re-enactment of O.J. Simpson's civil trial. The companies did not disclose how much they are paying Time Warner Inc. for its 58.4 percent stake, but the figure was widely believed to be $321 million.

The deal gives both companies increased access to cable viewers without the cost of building a new network while Time Warner is expected to use the proceeds to pay down its massive $17.5 billion debt load.

Comcast already owns 10.4 percent of E!, which offers celebrity and general entertainment programming and reaches more than 42 million cable subscribers, about two-thirds of all such viewers. Comcast will manage E! through its C3 programming unit, chaired by former Disney and Paramount executive Richard Frank.

Disney's other cable properties include ESPN, ESPN2, ESPNews, The Disney Channel, Lifetime, A&E and the History Channel.

Disney also announced it had increased its quarterly dividend to 13.25 cents a share from 11 cents a share, payable May 23 to shareholders of record on April 11.