Man Without Qualities

Wednesday, February 11, 2004

The Fall Of The House Of Eisner III: Disney In Play?

From the Wall Street Journal:

Comcast's real concern is less Disney itself than other rivals swooping in for its trophy. Among the potential entrants who could make a play for Disney are Barry Diller's InterActiveCorp., John Malone's Liberty Media Corp., Sumner Redstone's Viacom Inc., Rupert Murdoch's News Corp., and perhaps even Bill Gates's Microsoft Corp. They all have done far more media deals than Comcast CEO Brian Roberts and have strong incentives not to let Disney fall into the hands of a cable company. .... Disney does have a few cards to play in an effort to control its own fate, say investors. It can own up to its weak performance and dump Chairman and Chief Executive Michael Eisner, who has incurred the wrath of investors and two former board members, including Roy E. Disney.

And so it goes. Yesterday, a media titan. Today, just one of the corporation's few cards to play in an effort to control its own fate. Tomorrow, bring out the long knives!

The Comcast interest in Disney cames at a delicate moment. A shareholder meeting is coming up and Disney management has been making the rounds of the company's investors to shore up support for its slate of directors. Perhaps the most important entity in such an effort is the obscure but central Institutional Shareholder Services that describes itself this way:

Institutional Shareholder Services, Inc. (ISS) is the world's leading provider of proxy voting and corporate governance services. ISS serves more than 950 institutional and corporate clients worldwide with its core business — analyzing proxies and issuing informed research and objective vote recommendations for more than 10,000 U.S. and 12,000 non-U.S. shareholder meetings each year.

ISS's core businesses include global proxy services and database and research tools for institutional investors. With more than 15 years of experience and a respected team of domestic and international research analysts, ISS is considered to be the world’s authority on proxy issues and corporate governance. Our research and proxy voting policies are designed on the premise that good corporate governance ultimately results in increased shareholder value.

ISS doesn't own Disney stock, but a lot of institutional investors will follow its advice when it comes to backing the Disney management slate - or not backing them.

According to the New York Times, Patrick McGurn, special counsel for ISS, was visited in advance of next month's Disney shareholders meeting by both Roy Disney and his partner, Mr. Gold, and separately by George Mitchell and Mr. Eisner. Mr. McGurn told the Times that ISS had not yet decided how to advise shareholders. That's very bad news for Disney - despite Mr. McGurn's observation that there has been a "change of attitude" at Disney. That such an attitude change was viewed as needed is very telling.

What are Messrs. Disney and Gold after? The Times reports:

Their short-term goal is to get 35 percent of Disney's shareholders to withhold votes for Mr. Eisner and three other directors next month. Under an S.E.C. proposal released last October, reaching that threshold could force Disney to include alternate board candidates suggested by major shareholders the next year.

While investors and analysts say it is unlikely that the 35 percent level will be reached, a smaller number could still show palpable investor discontent with Mr. Eisner.

"If 10 percent of shareholders withhold their votes that would be significant," said Sarah Teslik, executive director of the Council of Institutional Investors, an advisory group for shareholders. "It would be an indication that Roy Disney has some place to go with this campaign."

In the middle of all this comes the Comcast offer - summarilly rebuffed by the pump headed Mr. Eisner.

I wonder if he could remember that the ISS is watching closely.

In the mean time, it appears that the Disney board, at least, has had one of those long disturbing chats about the fiduciary obligations of directors with the lawyers:

Comcast's $66 billion takeover offer -- a stock swap initially valued at $54 billion, plus the assumption of about $11.9 billion in debt -- was made despite the objections of embattled Disney CEO Michael Eisner, who personally rejected an overture from Comcast earlier this week.

By going over Eisner's head and delivering an offer directly to Disney's board of directors Wednesday, Comcast initiated a takeover bid that could turn hostile. ....

Disney officials issued a statement Wednesday promising to "carefully evaluate" the Comcast proposal, but they offered no time frame or any hint of the board's reaction.

Mr. Eisner is looking more and more like Steve Wynn, another once-cutting-edge executive who had gone seriously stale, on the eve of the loss of "his" company to Kirk Kerkorian.

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