Disney Dissidents' Suit Can Go to Trial

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Disney Dissidents' Suit Can Go to Trial

By ALEX VEIGA | AP Business Writer
Posted June 6, 2005, 8:33 PM EDT


LOS ANGELES -- A lawsuit against The Walt Disney Co. filed by two former board members challenging the way the company selected its new CEO can go to trial, a Delaware Chancery court judge ruled Monday.

Chancellor William B. Chandler III concluded the claims by Roy E. Disney and Stanley P. Gold merit going to trial and rejected a motion by Burbank-based Disney to have the complaint dismissed.

Chandler set the trial to begin in August.

"The ruling is not on the merits of the case. We look forward to proving why there is absolutely no basis to these allegations," Disney spokesman David Caouette said.

Roy Disney and Gold issued a statement saying they were pleased with the decision.

In their lawsuit, filed last month, the two Disney dissidents allege members of the company's board of directors made false statements to shareholders about the search for a successor to Chief Executive Michael Eisner. In March, the board selected Disney President Robert Iger to replace Eisner. Iger takes over in October.

The suit asserts that the disgruntled ex-directors would have run an alternate slate of directors if they had known the Disney board was not going to seriously consider any other candidates.

"Should these allegations be proven, plaintiffs could be entitled to the relief they seek because the board's statements materially misled plaintiffs with respect to the board's intent to conduct a bona fide executive search process," Chandler wrote in the 19-page decision.

Chandler, however, also wrote that "With respect to the 'troubling facts' listed in the complaint, I cannot conclude that they ... demonstrate that the company's board went about the process of searching for a new CEO in a manner inconsistent with the board's Sept. 21, 2004, statement."

Roy Disney and Gold have asked the court to void the election of the Disney directors, force another election and disclose all details of how they selected a new chief executive.

Among the defendants named in the suit are Eisner, Iger and Chairman George Mitchell.

Disney shares fell 24 cents to close at $27.08 Monday on the New York Stock Exchange.

 

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Delaware Court Won't Dismiss Suit Over Disney CEO Pick


DOW JONES NEWSWIRES
June 6, 2005 7:35 p.m.

By Peg Brickley
Of DOW JONES NEWSWIRES
PHILADELPHIA -- A Delaware judge Monday refused to dismiss a suit against some directors of Walt Disney Co. (DIS) that claims the board failed to make good on a promise to give fair consideration to outside candidates in its search for a successor to Chief Executive Michael Eisner.

The lawsuit is the latest salvo from dissident shareholders Roy Disney and Stanley Gold, who led a successful shareholder movement to oust Eisner from the top spot at the entertainment giant.

Monday's ruling came from the same judge who presided over another lawsuit involving Disney's top talent, brought by shareholders who say Eisner and Disney's board fumbled the hiring and departure of Michael Ovitz, a one-time Eisner friend who occupied Disney's presidency briefly in the mid-1990s.

Chancellor William P. Chandler said he could not find that the new suit failed to state a potential case against Disney's board, and thus could not dismiss it.

Eisner's announcement he would retire did not end Gold and Disney's attempt to rally shareholders to pressure the board for change.

Allegedly fearful that Eisner would keep a grip on the company by maneuvering to have his chosen successor, Disney President Robert A. Iger, named to succeed him, they renewed what Chandler termed a "clearly defined threat" to run a rival board slate in the fall of 2004.

Assured by board statements that Disney's directors would give full and fair consideration to outsiders, the critical shareholders abandoned plans to try to unseat the board at the 2005 annual meeting.

Shortly after that meeting, Disney's board announced it had, indeed, picked Iger as the new CEO, triggering a new lawsuit in Delaware's corporate law tribunal.

If the facts alleged are proven true at trial, Chandler said, they could be sufficient to show that Disney's "board materially misled shareholders about the structure of the search for a new CEO."

Monday's ruling left standing two possible grounds for suit, one for failure to disclose all information shareholders would need to evaluate whether the CEO search was rigged or not, and one for alleged fraud.

The fraud claim is based in an assertion by Gold and Disney that the board tricked them out of their right to mount a proxy context by false assurances that they run an open search process.

Chandler indicated he would be particularly interested in seeing evidence that Disney Chairman George Mitchell told the only outside candidate allegedly interviewed by the board - eBay Inc. (EBAY) CEO Meg Whitman - that she was not a serious candidate.

He also took note of allegations that grew out of DisneyWar, a book by James Stewart that describes the tumult at the top of the company.

According to Disney and Gold, the Stewart book reveals potential wrongdoing by Eisner and Iger in connection with the company's acquisition of Fox Family channel that at least merited investigation, if not disqualification of Iger from the CEO's competition.

At a hearing last week in Delaware where the motion to dismiss was argued, attorneys for the directors said the book says little about Iger's role in the deal.

If the new case comes to trial, Chandler said, the critical issue will be whether Disney's search for someone to take the reins from Eisner was a "sham" or, as attorneys for the board have said from the start, a bona fide effort to find the best executive to head the company.

A victory for Gold and Disney in the case could lead to an order upsetting the 2005 board election results and a new election, according to court papers.

-By Peg Brickley, Dow Jones Newswires; 302-521-2266, peg.brickley@dowjones.com