And Now, On With the Show

First published March 02, 2004

By C. W. Oberleitner

Before packing up and heading off to Philadelphia JHM West Coast Correspondent, C. W. Oberleitner, checked in with a look back at the recent news surrounding the WDC. Chuck tells us that while Big Cheese, Michael Eisner, can't loose this Wednesday's election it may be time for the rest of us to grab a fork and cue the fat lady.

Despite a media blitz that included personal appearances at the rain soaked premier of Snow White an Enchanting New Musical at Disneyland’s Fantasyland Theatre and a hastily arranged appearance on CNN’s "Larry King Live," February wasn’t exactly a banner month for embattled Walt Disney Company CEO, Michael Eisner. Things are going so badly for Uncle Mike that financial journalists are beginning to use political metaphors like, "The Big Mo" as in momentum to describe the situation. Unfortunately for Eisner, the momentum they’re referring to belongs to institutional investors with large blocks of Disney stock. Investors, that in ever increasing numbers have, publicly announced their intention to vote NO on returning Eisner as the Chairman of the Board at the Magic Kingdom.

Mostly symbolic—Eisner and the current board are running unopposed so their re-election is assured—the steady drumbeat of no confidence announcements is taking its toll Eisner’s ability to remain at the top castle.

The Hits Just Keep Comin

Hours after influential advisory firm, Glass Lewis & Co., became the second such firm to recommend that its clients withhold votes for Michael Eisner and selected members of the WDC board, The California Public Employees’ Retirement System (CalPERS) announced that it withhold voting for Eisner for the position of Board Chairman/Chief Executive Officer of WDC. The following day the California State Teachers’ Retirement System (CalSTRS) announced its intentions to withhold votes. Later that same day five more state plans announced, for reasons very much like those listed by the two California plans, that they too would withhold voting for Eisner.

By Saturday the total number of state plans that had announced their intention to withhold votes for Eisner, as well as several other members of the Disney board, had risen to nine. The New York State Common Fund, the New Jersey Division of Investment, the Massachusetts Pension Reserves Investment Management Board, the Virginia Retirement System and the Connecticut state pension, North Carolina, and the Ohio Public Employees Retirement System (OPERS) all fell in line behind the two powerful California funds.

Prior to the CalPERS and OPERS announcements Eisner and board member Robert Matshullat, met with representatives of both the CalPERS and OPERS funds to answer questions about the WDC’s corporate governance. During those meetings the two continued to try and make the case that Disney had overcome recent setbacks, was making money and forecast growth of 30% for the coming year. Obviously, fund managers weren’t impressed.

Wheels Within Wheels

All of this news makes for a stunning backdrop to this week’s Disney related events and there’s even more drama going on behind the scenes. Friday afternoon, in an uncharacteristically rare break from their perpetual state of denial, executives within the Magic Kingdom began privately acknowledging to the media that the company now expects that the NO vote on Eisner could be as high as 30%. Sources familiar with Disney’s operations say this is actually the Mouse’s media machine attempting to manipulate public expectations.

"This way," one L.A. PR specialist told me, "if the vote actually comes in at 20% or less than can say ‘See, we told you there’s more confidence in Mike than you guys (the media) think."

Other sources familiar with Team Disney Burbank’s willingness to play hardball with its foes, have been suggesting they are trying to influence the turn out at today’s SaveDisney.com rally. By hyping a possible 30% NO vote in advance of the rally the Mouse hopes to create a sense of over confidence among anti-Eisner shareholders and Disney fans. Thereby causing them to think there’s no need to brave downtown Philadelphia traffic to attend the rally. Dependent upon which source you choose to believe today’s SaveDisney rally is either going to be so crowed there will barely be room for all the media that’s asked to attend or, so poorly attended the press may out number the attendees.

In recent weeks a sort of anti Roy Disney, Stanley Gold, SaveDisney backlash has broken out on discussion boards around the Internet. Folks, like us, who’ve been covering the vote NO on Eisner story have received some very well written e-mails asking if Roy Disney and Stanley Gold might not be responsible for bringing the wolf, in the form of Comcast, to the gate, if not the door, of the Magic Kingdom. And, there has been an abundance of inside information made available about what Roy and Stanley’s days on the board were like as well as personal information about their work habits.

The sudden appearance and shear volume of this information is more than just a little coincidental.

Several years ago the major studios were caught off guard when a handful of folks, now known as "bloggers," began having a serious negative impact on box office receipts for some of Hollywood’s biggest films. With access to post production facilities and focus group screenings would-be Eberts and Ropers could see major studio productions well before the paying public. More often than not they would rush to their keyboards and announce to the world a film’s ultimate fate days even weeks in advance of its release.

It didn’t take long for the studios to catch on. They started fighting fire with fire. In addition to launching official websites for their feature releases many Hollywood production companies began peppering the web with somewhat less professional looking sites designed to emulate the look of fan sites. Writing under on-line screen names, production company publicists created discussion board and e-mail campaigns supportive of their projects. The studios even cultivated relationships with some webmasters and began feeding them "inside" information. One of the best studios at this form of guerrilla marketing is the Disney studio.

With billions of dollars as well as the ultimate fate of the WDC at stake its little wonder that spin masters from all sides of this story want to use every form of media available to them to get their side of the story out.

What’s It All About, Mickey?

Not all of these discussions and e-mails are of a suspicious nature. There’s a great deal of legitimate debate going on about what all this news means, to Eisner, Comcast, Wall Street, and most of all the millions of fans of all things Disney.

As with any good saga, people are intrigued by this unfolding, real-life serial drama. They can’t help speculating about what’s going to happen next. Will Eisner quit or be fired? Does his ultimate fate really matter as long as the current board stays in place? Who could replace Uncle Mike? Will Comcast prevail? What’s gonna happen at this week’s rally and shareholders’ meeting?

While no one can answer those questions with any degree of certainty there are a few things known about what’s going on. Last weekend while all of Hollywood was gearing up to bestow Peter Jackson and The Lord of The Rings: The Return of The King with eleven Oscars, Michael Eisner was meeting with members of the WDC board of directors to discuss his future. It has been reported that Eisner is at least willing to give up one of his two titles, either CEO or more likely Chairman of the Board. Failing to separate these two positions has long been a major complaint of institutional investors.

How all of this will play out at tomorrow’s shareholders’ meeting is another matter. Here are some of the possible options available to the WDC.

Nothing Happens: Eisner and Company put on the show exactly as planned, with the one probable exception being that Eisner will find a way to bow out of the Q&A session with shareholders. Denial has long been the watchword at Disney. Ever since the first website complaining about poor maintenance at Disney theme parks went up on the Internet the WDC has steadily and continuously dismissed criticism leveled against it as being "misguided" and "misinformed." This practice has continued all the way through last week’s pension fund announcements.

Appearance is everything in the entertainment industry. Regardless of what’s going on behind the scenes the Mouse knows full well that the more smiling faces people see on TV the better it is for the company, especially in light of the fact that this is all being played out in Comcast’s hometown.

Eisner Resigns: In a dramatic move sure to grab headlines Michael Eisner could open the meeting by announcing his retirement sometime within the next six to nine months. While sure to please the throngs of Disney fans out for his head, there doesn’t appear to be any sign that he’s considered doing this.

Job Split: As previously mentioned, it has been reported that Eisner and members of the board are considering buying time for themselves and the company by acquiescing to the narrowest interpretation of the one demand made by investors that allows them, for the time being at least, to keep their jobs, splitting the CEO and Chairman’s position into two separate positions. Such a move is not likely to satisfy fund managers who have gone out of their way to make it clear they see Eisner, and several members of the current board as the cause of, not the solution to, the company’s problems. As one analyst put it, "It’s a lot like rearranging the deck chairs on the Titanic.

You’re Fired: Acting on behalf of the board Presiding Director George Mitchell could ask Eisner for his resignation. At the shareholders’ meeting he could then announce that he has had to "regretfully accept" Michael Eisner’s resignation as CEO and Chairman. Then he would either announce that the board would immediately begin the search for a new CEO or, that an offer has been made to a "highly qualified" successor. It is generally believed that one of the plans discussed at this past weekend’s meetings had Eisner leaving the company by as early as this coming weekend or the first of next week.

It is known that Mitchell, despite repeated denials, has for sometime been quietly searching for Eisner’s replacement from a small pool of "Wall Street friendly" candidates. The current odds-on favorite for the job is 52-year old FOX Studio, FOX Broadcasting, etc. head honcho Peter Cherin.

Because of Comcast’s unsolicited bid to take over the Magic Kingdom, whatever Eisner and the board do it must be handled with the utmost delicacy. Sources in Philadelphia say that later today—in order to give shareholders an opportunity to confront Disney management during their meeting the following day—Comcast is expected to announce a sweetening of its bid. Some reports suggest that despite repeatedly telling the media that they will not "overpay" for Disney Comcast is, with the help of an as of yet unnamed partner, willing to add enough cash to its original offer to well exceed the $60 billion value placed on the Mouse House by analysts just a few weeks ago.

Whether they do this or not, this still open matter is bound to have a dampening effect on any effort to find a replacement for Eisner. It’s widely believed that should Comcast succeed in its attempt, Steve Burke, a former WDC exec and now head of Comcast’s cable division, would takeover stewardship of the Magic Kingdom.

What about Roy Disney, Stanley Gold and Shamrock Holdings? Regardless of the actual percentage of the NO vote most analysts finally agree that this is one tight situation Eisner will not be able to elude. It may not happen this week but its becoming increasing clear his time at Disney is up. Could the two former WDC board members have an announcement or two of their own planned for today’s rally? Perhaps they have a candidate, other than News Corporation’s Cherin, in mind to replace Eisner. Disney fans hope the pair has found a White Knight to keep the company free and independent.

Resolving Michael Eisner’s ultimate fate at the WDC is only the next act in this ongoing serial drama. After this the story will move on. It will either turn on Comcast’s latest offer or speculation about who his replacement will be. Stay tuned.

C’ya real soon!