Man Without Qualities

Friday, February 13, 2004

The Fall Of The House Of Eisner V: The Man Without Qualities Get Results!

It was so, so long ago. Eons. A geological era. Over a day ago in the Disney/Comcast kerfluffle, the Man Without Qualities urged:

You there on Wall Street, think of the fees!

And the painful truth of it is that the Man Without Qualities did not have in mind just the fees to be earned from value-enhancing divestitures and restructurings of the post-Eisner mess at Disney, although the plea was couched in that context. No, the truth is that the Man Without Qualities does not think for a moment that those on Wall Street give a rat's ass about whether their fees come from value-enhancing transactions at all. Wall Street just wants fees. And, although I would like to think I acted in the service of a higher good, it was that basic inclination of Wall Street that the Man Without Qualities was seeking to stimulate with the clarion call: Think of the fees!

And I am deeply satisfied with the increasingly plentiful signs that Wall Street is rising(?) to the challenge laid down by the Man Without Qualities, as with this sample:

The New York Times:

As soon as the bid was announced, eager investment bankers trolling for new deals began pelting executives of Time Warner ... with phone calls warning of dire implications. The advice went like this ... Time Warner would miss its chance to own Disney's ABC television stations, another valuable bargaining chip. The pitch: bid for Disney.

Los Angeles Times:

In making its bid for network parent Walt Disney Co. this week, cable giant Comcast Corp. blamed the long-suffering ABC for dragging down Disney's fortunes. The network, the industry's most profitable when Disney agreed to buy it in 1995, lost by some estimates as much as a half-billion dollars last year.

Ah, the tender mercies of the market for corporate control!

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Thursday, February 12, 2004

Another Fourteen Points

Baseball Crank has Fourteen Points for Democrats all over the country to spend all their time trying to answer until November!

Will Democrats continue to obsess on this National Guard silliness? If they do, the rest of the country will get on with discussing the issues that will actually matter in November - and voting Democrats from office. As the last Democrat is dragged from the Senate cloakroom, (s)he can gibber:

"But ... but ... there must be some mistake! I must have been re-elected! You see, Bush's Guard service was irregular!"

But it won't happen. The Democrats - or at least the more rational ones - seem to be grudgingly admitting that the election will be about the present and the future - not obscure, marginal issues from the deep past.
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The Fall Of The House Of Eisner IV: ISS Moons Michael Eisner

Institutional Shareholder Services, Inc. (ISS) has now recommended that shareholders NOT support the re-election of Michael Eisner to the board of the Walt Disney Company. As noted below, such a recommendation is normally very influential with institutional investors.

This is very, very bad for the Disney chairman. Perhaps he should have been a little nicer to the gentleman calling from Comcast who was offering many billions of dollars and a reasonable-sounding business plan. Instead, Mr. Eisner just rebuffed him out of hand. Who told Mr. Eisner that institutional investors like to see the Chairman of a company in their portfolio hang up on suitors bearing very big checks? Fire that person, Mr. Eisner!

The radiance was that of the full, setting, and blood-red moon, which now shone vividly through that once barely discernible fissure, of which I have before spoken as extending from the roof of the building, in a zigzag direction, to the base. While I gazed, this fissure rapidly widened—there came a fierce breath of the whirlwind—the entire orb of the satellite burst at once upon my sight—my brain reeled as I saw the mighty walls rushing asunder—there was a long tumultuous shouting sound like the voice of a thousand waters—and the deep and dank tarn at my feet closed sullenly and silently over the fragments of the “House of Eisner.”

Yes, yes,, yes ... and the internet is going absolutely wild! It makes so much poetic sense that Mr. Eisner's last days should be suffused with the scent of decay and outlandish speculation of complex and devious conspiracies!


Things for Eisner turned worse Wednesday when Institution Shareholder Services, a research firm that advises shareholders on a variety of issues, recommended that Disney shareholders withhold their vote on the re-election of Eisner to the company's board of directors.

Now the news media is faced with a tough issue: Do you lead the news with yet another Democratic presidential candidate getting out of the race or Eisner stepping down?

Oh, he's going to step down alright. Maybe not today. Or tomorrow. But the pressure is too intense not to. Either that, or there's the whole ouster route -- it takes longer, it's uglier and it historically rips a big hole in one's golden parachute, so Eisner would be dumb to fight for too much longer.


It is unlikely that Mr. Eisner's mind will be set at ease by a observable tendency in Wall Street denizens to talk about the Comcast takeover of Disney as if it were a done deal:

"This opens the whole field up," Paul Kim, an analyst at Tradition Asiel, said. "Although the Comcast-Disney thing is big, the more interesting question is what comes after and how will this have a ripple effect on the industry," Kim said. "Every institutional investor here is thinking about what's the next M&A deal down the pike."

Yes, yes. This one's pretty much in the bag. Now let's talk about ripples. It also means Disney is in play, analysts say.

The media don't seen to be paying much attention to the fact that Comcast's share price has fallen substantially since the offer was made. Comcast management may - or may not - have some answering to do when its own shareholders start asking the big questions. But, so far, many people think that there is a "strategic necessity" for Comcast to own Disney. How does one criticize management for doing what's "necessary?"


Disney, of course, owns ABC - and therefore controls ABC News. Interestingly, an astute reader e-mails to point out that ABC News seems to be the only media outlet suggesting that Comcast is not offering to pay nearly enough, and will have to up its offer substantially to prevail. (Some modest increase is of course likely on ordinary deal dynamics grounds - but ABC is suggesting a lot more than that is needed.) In addition, the Disney subsidiary article (1) quotes Michael Eisner as saying that Disney is on the "road to recovery" (And ABC breathlessly opines: Disney's quarterly report indicated that the surge Wednesday might not be a one-day fluke created by excitement over the merger proposal.) (2) quotes an analyst saying "Disney did a nice job over the quarter!" and (3) reports that no one thinks that Comcast is paying too much!

Life in the trenches!

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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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At the time the movies The Terminator and Terminator 2 were made, "hi tech" meant chips - hardware. The Terminator threat was a chip.

By the time Terminator 3 was ginned up, hardware was so yesterday - "hi tech" meant internet software. The Terminator threat to civilization correspondingly evolved into an uber-Java-like program, "Sky Net."

And now it looks like hardware may be back as the next big thing.

Does this mean Terminator 4 will feature some wireless, amorphous nimbus of light nodes that somehow zaps squishy humans?
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The Fall Of The House Of Eisner II: Now For The Tender Mercies Of The Market For Corporate Control?

Someone, finally, is trying to buy the almost inconceivably mismanaged Walt Disney Company.

The would-be purchaser happens to be Comcast. Of course, Comcast notes that Michael ("Valeur d'actionnaire? Planification strategique? Cest moi!") Eisner already "had rebuffed its request for talks". At least the phrasing and volume of Mr. Eisner's retort will likely change once he has had time to speak at greater length to his attorneys about the fiduciary obligations of the directors of a Delaware public company finding itself "in play."

The Man Without Qualities has not exactly been a fan of Disney management - especially the likely pump-head Michael Eisner. "Disney in play." How long has the world justifiably waited for those words! We're really not quite there, yet. But close. So close.

What does it say for Disney that the first action taken by it's kennel of Eisner lap dogs masquerading as a board is early release of supposedly positive financial results? The results depend heavily on revenues from (1) Finding Nemo, a product of the now-defunct Pixar/Disney joint venture that foundered on Mr. Eisner's pointless accusation that Steve Jobs' Apple was aiding and abetting the theft of Disney's intellectual property, and (2) the unrepeatable Pirates of the Carribean, surely Disney's own best effort to prove the truth of the cannard "Even a blind hog sometimes finds an acorn." (Acorns are it. It's unlikely many analysts will award a truffle to this hog.)

Now if only "Disney bust-up deal" could gain currency! The value that might be realized by undoing so much of the Eisner legacy! Tossing out moribund ABC assets (except the accidentally-acquired ESPN)! The real estate occupied by that silly Florida wild animal park! Restoring annimation. The acquisition/bust-up/restructuring would be comfortably self-financing and then some!

You there on Wall Street, think of the fees!

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Monday, February 09, 2004

Ineffective Vaccine

Senator John Kerry is now openly questioning - disparaging is actually the more accurate word for what Senator Kerry is doing - President Bush's National Guard service record. The Wall Street Journal and others believe that the Senator is trying to use his Vietnam biography as a political shield against his national security voting record. The Journal gives many reasons why Senator Kerry's post-Vietnam record is a big problem for him - and why he is therefore trying to distract attention from it this way.

What's especially curious about this Kerry ploy is that it has been tried recently by other Democrats and it has not worked. Most recently, Wesley Clark disparaged Senator Kerry's military record in a manner having substantial points of similarity with Senator Kerry's attempt to now disparage the President's military record. Senator Kerry seems not to have learned when Mr. Clark was forced to recant. And, of course, Wesley Clark himself failed to establish his credibility on national security matters even with a thirty years military career as "inoculation."

But the most spectacular example of the ineffectiveness of this particular inoculation is the defeat of former Senator Max Cleland of Georgia, who has recently been very active in supporting John Kerry's bid for the Presidency. Saxby Chambliss defeated the then-incumbent Democratic Senator Max Cleland with a campaign including a controversial ad which Capitol Hill newspaper Roll Call described as follows:

The spot begins with a screen showing video footage of al Qaeda terrorist leader Osama bin Laden and Iraqi President Saddam Hussein. "As America faces terrorists and extremist dictators, Max Cleland runs television ads claiming he has the courage to lead," an announcer states. The ad continues: "Max Cleland says he has the courage to lead. But the record proves Max Cleland is just misleading."

The ad brought howls of protest from the left, and accusations that the Chambliss ad inappropriately "associated" Cleland with bin Laden and Saddam Hussein and somehow "questioned Senator Cleland's patriotism." Both charges were absurd, and were seen as absurd by most of the public. To be weak on defense and national security (as Senator Cleland was) of necessity means being weak on defending and securing the country from somebody. Naming that somebody in a campaign ad is perfectly appropriate and in no way "associated" Cleland with bin Laden and Saddam Hussein or "questioned Senator Cleland's patriotism" any more than John F. Kennedy's "missile gap" ploy "associated" Richard Nixon with the Soviet Union or "questioned Vice President Nixon's patriotism." Nobody in his right mind would argue that Kennedy was suggesting that Nixon worked for the Soviets. The fault in Kennedy's ploy lay in it's serious inaccuracy, not in any "association" or "question of patriotism" it attempted to create for his opponent. In contrast, accusations that Senator Kerry has been weak on national security are perfectly accurate. In fact, to be Senator from Masachusetts requires one to be weak on security, so Senator Kerry has been himself counting on the ineffectiveness of his "inoculation" for decades in Massachusetts. The furor on the left and the Cleland "inoculation" didn't work in Georgia, either. So the "inoculation" works in neither liberal nor conservative states. Yet Senator Kerry is shooting up.

Senator Kerry's ploy will probably make his campaign problems with national security worse than they are. The world has changed since Vietnam. We have other problems, other enemies now. Kerry's ploy carries a severe risk of presenting him as someone overly focused on the past, which he is. It's just one more way in which he is out of touch.

More and yet more. But I will be amazed if anyone cares strongly about this non-issue now or will even tolerate hearing about it in a week.

And now: A National Guard comrade comes forward with a letter to the Washington Times. But the problem is that the people who care about this non-issue (and, to be fair, there are several of them) would have to remove their tinfoil hats to read the letter. And they're just not going to do that.

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Sunday, February 08, 2004

Another Roe Effect

One of the more controversial - one might say incendiary - propositions advanced by a noted economist recently is surely the proposition that Roe v. Wade has reduced the national crime rate substantially - simply by resulting in the abortion of a lot of fetuses that would otherwise grow up to be criminals.

Posited Roe effects don't end with the crime rate. James Taranto and others have advanced plausible arguments that Roe effects are causing the country to become more conservative (liberal fetuses go first) and may have undercut Howard Dean (not enough angry young leftists left now). Roe effects might also move the country away from support of abortion rights (pro-choice fetuses go first). Of course, some have noted that a disproportionate number of racial minority fetuses are aborted - raising the possibility of Roe effects on racial population mix.

The Man Without Qualities thinks that some Roe effects will turn out to be very important. Indeed, the significance of Roe effects that depend on the assumption that children's behavior strongly reflects family behavior and attitudes is consistent with the proposition that the most important wealth passed from generation to generation takes the form of attitudes and education and values, not money or goods or securities or property. This observation, of course, was advanced by Wally Blum in Uneasy Case for Progressive Taxation (despite the title, actually the most important set of arguments against progressive and inheritance taxation yet made). So one senses that Roe effects have even deeper and broader significance than yet understood.

But I think it is worth noting that some Roe effects cut against conservatives, as was recently driven home to me by two decisions made by two very different sets of friends. Both friends are married couples, both wives over forty. One is strongly pro-choice, one is strongly pro-life. Both dearly wanted another baby. Both couples were strongly averse to having a Downs child or other genetically defective child.

The pro-choice couple went ahead and conceived on the theory that they would have the fetus tested. If it showed obvious genetic defects, they would have it aborted. The child tested "normal" and was allowed to be born.

The pro-life couple did not conceive because they deemed the risk of creating a genetically defective child too great. Abortion was, as noted, not an option. The only option was not to conceive - so that's what they did.

The net effect of these two couples' decision processes is the existence of one more child in a liberal, pro-choice household. That's exactly opposite the consequences of the typical Roe effect.

I do not suggest that the contra-Roe effect example described above overwhelms the more often observed Roe effects. But the example above does show that Roe effects aren't completely partisan.

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