Can Disney Turn a Frog Into a Prince?

Once again, Mickey Mouse may try to bring Miss Piggy and her fellow Muppet friends into the Magic Kingdom.

Walt Disney Co. is considering whether to make an offer to buy Jim Henson Co., creator of Muppet characters Kermit the Frog and Fozzie Bear, sources close to the matter said Thursday.

It’s unclear what Disney would be willing to pay Henson Co.’s parent company, financially strapped EM.TV & Merchandising. But any offer probably would be well below the $150 million Disney bid more than a decade ago.

The biggest challenge for Disney or any other potential buyer will be to find ways to make the Muppet figures relevant to a new generation of kids weaned on characters such as Arthur, SpongeBob SquarePants and the Rugrats.

Some industry sources, who have taken a close look at Los Angeles-based Henson Co., value it at as little as $80 million. The company’s properties include Muppet characters such as Miss Piggy and Kermit, as well as a movie special-effects house known as the Creature Shop.

But any sale would not include several of the Muppets’ most recognizable characters from the children’s television program “Sesame Street,” such as Big Bird and Bert and Ernie. The rights to those characters belong to Sesame Workshop.

Representatives of Germany-based EM.TV are said to be in Los Angeles this week seeking buyers for Henson Co., which it acquired two years ago for $680 million.

Disney has had a long interest in acquiring Henson’s characters to complement its line of family entertainment. Buying Henson Co. would fit the Burbank entertainment giant’s recent strategy of investing heavily in children’s programming, particularly for the profitable Disney Channel. Hits there have included the show “Bear in the Big Blue House,” which is produced by Henson.

Yet Disney faces competition from other potential suitors, including billionaire investor Haim Saban and Dean Valentine, former chief executive of United Paramount Network.

Representatives of EM.TV, Henson Co. and Disney declined to comment. A source close to Saban said his offer still was on the table. Valentine declined to comment.

The Muppets made their network TV debut in 1956 on “The Steve Allen Show,” and “The Muppet Show” ran in first-run syndication from 1976 to 1981. Since then, however, Henson Co. has struggled to make its characters connect with younger audiences.

The 1999 movie “Muppets From Space” flopped, as did the Muppets TV series “Muppets Tonight,” which first ran on Disney-owned ABC. However, a Muppets Christmas movie that aired on NBC on Nov. 29 drew surprisingly strong ratings.

“There’s still a wonderful brand name in the Jim Henson Co. that if placed in the right hands could be a very valuable asset,” said Toper Taylor, president of Nelvana Communications, a Canadian animation studio that specializes in children’s programming. “However, the clock is ticking and the tarnish is growing.”

Disney believes it could revive the Muppets with better management and with the help of the company’s TV, film and direct-to-video outlets, sources say.

Other studios have had huge success repackaging older characters for a new generation of children, notably Warner Bros. with its hit movie “Scooby-Doo.”

“It could be a good strategic move for Disney,” said Tom Wolzien, an analyst at Sanford C. Bernstein & Co.

It’s uncertain, though, whether Disney Chief Executive Michael Eisner would be willing to engage in a bidding war for Henson.

Turning around Henson would be an expensive undertaking, and Eisner may not have the appetite for such a task given Disney’s tight finances, which have been squeezed by the slow economy.

Disney and Henson Co. have had a lengthy -- and sometimes acrimonious -- relationship.

Eisner agreed to buy the company for $150 million nine months before Jim Henson’s death in May 1990. But the deal unraveled after Henson passed away, prompting his heirs to sue Disney for allegedly exploiting the Muppet characters before owning them. Disney then countersued. The parties reached a settlement in May 1991, with Disney agreeing to pay $10 million for limited theme park rights.

The resulting “Muppet Vision 3D” attraction at Disney-MGM Studios in Florida was replicated in 2001 at Disney California Adventure in Anaheim.

EM.TV is said to be eager to sell Henson Co. by the end of the year to avoid a cash crunch stemming from several acquisitions that left the media company with $934 million in debts.