Comcast Abandons Disney Bid, but Pressure on Eisner Remains
By LAURA M. HOLSON
Published: April 29, 2004
LOS ANGELES, April 28 — The Magic Kingdom is no longer under assault, but its king remains under siege.
The Comcast Corporation, the nation's largest cable operator, abandoned its $54.1 billion hostile takeover bid for the Walt Disney Company on Wednesday, but the move is hardly a triumph in the storied career of Michael D. Eisner, Disney's chief executive.
Mr. Eisner still faces a raft of issues, most notably restive shareholders so convinced that he has mismanaged an American icon that they forced Disney's board to strip him of his chairman's title last month. Analysts and investors are also concerned about whether Disney can deliver on the company's promised turnaround given the continuing troubles at its ABC network and animation division.
Comcast's unsolicited takeover offer to Disney on Feb. 11, which would have created the world's largest entertainment conglomerate, was rejected the next week by Disney's board as too low. With Disney's continued refusal to entertain selling and Comcast's stock price remaining mired more than 10 percent below its price before the initial offer, the cable company decided to rescind the offer. [Page C1.]
Comcast's withdrawal offered Mr. Eisner and Disney only temporary relief from their critics. Later on Wednesday, just a day after Disney's board expressed confidence in Mr. Eisner at the end of a two-day retreat, Roy E. Disney, Walt Disney's nephew and a former board member, reaffirmed his commitment to force Mr. Eisner out.
"Should the board continue to remain unresponsive to its shareholders, we are confident we can put together a board that will act in the shareholders' interests," Mr. Disney and Stanley P. Gold, his business adviser and a former board member, said in a statement.
What drew the particular ire of Mr. Disney and Mr. Gold, and surprised some Wall Street analysts and investors, was the board's decision not to initiate a formal succession plan for Mr. Eisner.
The widespread disapproval of the performance of Mr. Eisner, who has run Disney for 20 years, became clear at the March shareholder meeting in Philadelphia. As demonstrators, curious tourists and costumed Disney characters created a circuslike atmosphere outside the Pennsylvania Convention Center, investors inside withheld more than 45 percent of their shares supporting Mr. Eisner for re-election to the board. A revolt at next year's annual meeting is already brewing, and the creation of a special committee to initiate a formal succession plan could have helped quell the dissent.
"It is something I thought they would do," said Chris Dixon, a managing director at Gabelli Capital Partners who has followed Disney for years as a Wall Street analyst. "It would have showed they listened to investors."
Disney and Mr. Eisner chose not to crow about the end of Comcast's unwelcome hunt, saying nothing at all. Comcast's bid offered little to Disney investors but the promise of new leadership in Stephen B. Burke, the former Disney executive who is president of Comcast Cable. With that bid withdrawn — and no other bids for Disney in sight — Mr. Eisner's hold on the top job looks increasingly secure, at least until his contract expires in September 2006.
Corporations are typically reluctant to change top management when they are under siege. With a Comcast takeover no longer a threat, however, the board no longer has a reason to delay tackling the management issue, investors and analysts said.
"The question comes back to, So now what?" said Gregory P. Taxin, chief executive of Glass, Lewis & Company, a shareholder advisory firm that recommended that shareholders withhold their votes for Mr. Eisner's re-election as a director. "They no longer have the rationale that they need a strong leader to fend off a company which approached them in an unwelcome way. The board has gotten what they've wanted all along, an independent Disney irrespective of whether that is the best method to create shareholder value."
Mr. Eisner, a successful television and movie executive, joined Disney in 1984 at the behest of Mr. Disney and Mr. Gold. Charged with restoring the glory and profits of a company whose creations like Mickey Mouse and Goofy have enraptured millions of children and adults, Mr. Eisner became the driving force in the company's growth.
He was the face of "The Wonderful World of Disney" on Sunday nights, chatting up Tinkerbell as he introduced shows. He oversaw the revitalization of the animation division, which created hits like "The Little Mermaid" and "The Lion King." And he spurred the development and expansion of the theme parks, here and abroad.
Mr. Eisner became wealthy in the process, earning more than $1 billion in his 20 years at Disney.
But beginning in the late 1990's, his magic seemed to fade. The animation division's popularity was supplanted by competitors like DreamWorks and Pixar Animation Studios. The ABC network, which Disney had acquired in 1996 as part of its merger with Capital Cities/ABC, has slipped to fourth, and last, among the major networks, passing up some of the biggest hits of recent years, like "The Apprentice," as management has gone through constant upheaval. Even one of the strongest divisions in recent years, the live-action movie division, has suffered as films like "The Alamo" fared poorly at the box office.
In the last five years, Disney's share price has underperformed major investment indexes, including the Dow Jones industrial average and the Standard & Poor's 500-stock index, despite recent gains in the stock price.
Critics have blamed Mr. Eisner for the malaise, accusing him of extinguishing the company's creative spark and driving away talented executives with what they called his micromanaging ways.
Mr. Eisner has, for the most part, successfully withstood the criticism, and explained away the company's lack of succession planning by saying the successor's name was in an envelope. Since George J. Mitchell, the board's presiding director, was named nonexecutive chairman in March, the company has not been so dismissive. Mr. Mitchell is charged with overseeing succession plans, but no formal search is under way, said a person who has talked to several board members.
One reason is that the board as a whole wants to be involved in any decisions, that person said. It is, meanwhile, focused on making sure Mr. Eisner delivers on his performance targets.
This fiscal year, Mr. Eisner has promised earnings growth from continuing operations of more than 40 percent. But the company's critics say that Disney's earnings were so paltry last year that the only place to go is up. In the first quarter of 2003 the company had operating income of $482 million and diluted per-share earnings of 2 cents. By contrast, in this year's first quarter it had operating income of $1.27 billion and earnings of 33 cents a diluted share — largely on the strength of its DVD releases of blockbusters like "Finding Nemo" and "Pirates of the Caribbean."
"The board has put themselves on the hot seat over the next year because they said, This is the team," said Richard Greenfield, a media analyst at Fulcrum Global Partners. "Now management has to prove the skeptics wrong."
By LAURA M. HOLSON
Published: April 29, 2004
LOS ANGELES, April 28 — The Magic Kingdom is no longer under assault, but its king remains under siege.
The Comcast Corporation, the nation's largest cable operator, abandoned its $54.1 billion hostile takeover bid for the Walt Disney Company on Wednesday, but the move is hardly a triumph in the storied career of Michael D. Eisner, Disney's chief executive.
Mr. Eisner still faces a raft of issues, most notably restive shareholders so convinced that he has mismanaged an American icon that they forced Disney's board to strip him of his chairman's title last month. Analysts and investors are also concerned about whether Disney can deliver on the company's promised turnaround given the continuing troubles at its ABC network and animation division.
Comcast's unsolicited takeover offer to Disney on Feb. 11, which would have created the world's largest entertainment conglomerate, was rejected the next week by Disney's board as too low. With Disney's continued refusal to entertain selling and Comcast's stock price remaining mired more than 10 percent below its price before the initial offer, the cable company decided to rescind the offer. [Page C1.]
Comcast's withdrawal offered Mr. Eisner and Disney only temporary relief from their critics. Later on Wednesday, just a day after Disney's board expressed confidence in Mr. Eisner at the end of a two-day retreat, Roy E. Disney, Walt Disney's nephew and a former board member, reaffirmed his commitment to force Mr. Eisner out.
"Should the board continue to remain unresponsive to its shareholders, we are confident we can put together a board that will act in the shareholders' interests," Mr. Disney and Stanley P. Gold, his business adviser and a former board member, said in a statement.
What drew the particular ire of Mr. Disney and Mr. Gold, and surprised some Wall Street analysts and investors, was the board's decision not to initiate a formal succession plan for Mr. Eisner.
The widespread disapproval of the performance of Mr. Eisner, who has run Disney for 20 years, became clear at the March shareholder meeting in Philadelphia. As demonstrators, curious tourists and costumed Disney characters created a circuslike atmosphere outside the Pennsylvania Convention Center, investors inside withheld more than 45 percent of their shares supporting Mr. Eisner for re-election to the board. A revolt at next year's annual meeting is already brewing, and the creation of a special committee to initiate a formal succession plan could have helped quell the dissent.
"It is something I thought they would do," said Chris Dixon, a managing director at Gabelli Capital Partners who has followed Disney for years as a Wall Street analyst. "It would have showed they listened to investors."
Disney and Mr. Eisner chose not to crow about the end of Comcast's unwelcome hunt, saying nothing at all. Comcast's bid offered little to Disney investors but the promise of new leadership in Stephen B. Burke, the former Disney executive who is president of Comcast Cable. With that bid withdrawn — and no other bids for Disney in sight — Mr. Eisner's hold on the top job looks increasingly secure, at least until his contract expires in September 2006.
Corporations are typically reluctant to change top management when they are under siege. With a Comcast takeover no longer a threat, however, the board no longer has a reason to delay tackling the management issue, investors and analysts said.
"The question comes back to, So now what?" said Gregory P. Taxin, chief executive of Glass, Lewis & Company, a shareholder advisory firm that recommended that shareholders withhold their votes for Mr. Eisner's re-election as a director. "They no longer have the rationale that they need a strong leader to fend off a company which approached them in an unwelcome way. The board has gotten what they've wanted all along, an independent Disney irrespective of whether that is the best method to create shareholder value."
Mr. Eisner, a successful television and movie executive, joined Disney in 1984 at the behest of Mr. Disney and Mr. Gold. Charged with restoring the glory and profits of a company whose creations like Mickey Mouse and Goofy have enraptured millions of children and adults, Mr. Eisner became the driving force in the company's growth.
He was the face of "The Wonderful World of Disney" on Sunday nights, chatting up Tinkerbell as he introduced shows. He oversaw the revitalization of the animation division, which created hits like "The Little Mermaid" and "The Lion King." And he spurred the development and expansion of the theme parks, here and abroad.
Mr. Eisner became wealthy in the process, earning more than $1 billion in his 20 years at Disney.
But beginning in the late 1990's, his magic seemed to fade. The animation division's popularity was supplanted by competitors like DreamWorks and Pixar Animation Studios. The ABC network, which Disney had acquired in 1996 as part of its merger with Capital Cities/ABC, has slipped to fourth, and last, among the major networks, passing up some of the biggest hits of recent years, like "The Apprentice," as management has gone through constant upheaval. Even one of the strongest divisions in recent years, the live-action movie division, has suffered as films like "The Alamo" fared poorly at the box office.
In the last five years, Disney's share price has underperformed major investment indexes, including the Dow Jones industrial average and the Standard & Poor's 500-stock index, despite recent gains in the stock price.
Critics have blamed Mr. Eisner for the malaise, accusing him of extinguishing the company's creative spark and driving away talented executives with what they called his micromanaging ways.
Mr. Eisner has, for the most part, successfully withstood the criticism, and explained away the company's lack of succession planning by saying the successor's name was in an envelope. Since George J. Mitchell, the board's presiding director, was named nonexecutive chairman in March, the company has not been so dismissive. Mr. Mitchell is charged with overseeing succession plans, but no formal search is under way, said a person who has talked to several board members.
One reason is that the board as a whole wants to be involved in any decisions, that person said. It is, meanwhile, focused on making sure Mr. Eisner delivers on his performance targets.
This fiscal year, Mr. Eisner has promised earnings growth from continuing operations of more than 40 percent. But the company's critics say that Disney's earnings were so paltry last year that the only place to go is up. In the first quarter of 2003 the company had operating income of $482 million and diluted per-share earnings of 2 cents. By contrast, in this year's first quarter it had operating income of $1.27 billion and earnings of 33 cents a diluted share — largely on the strength of its DVD releases of blockbusters like "Finding Nemo" and "Pirates of the Caribbean."
"The board has put themselves on the hot seat over the next year because they said, This is the team," said Richard Greenfield, a media analyst at Fulcrum Global Partners. "Now management has to prove the skeptics wrong."
