Topper sez belt-tightening moves are on the horizon
Walt Disney’s bid to win over Wall Street fell flat and its shares didn’t budge Friday, as investors said they heard nothing new on the Mouse’s strategy or prospects.
Missteps at ABC and a nosedive by the theme park biz have battered the stock in recent months and may have put chairman-CEO Michael Eisner’s job at risk.
The Disney topper offered a few tidbits: He acknowledged publicly for the first time that the company overpaid for Fox Family, shelling out $5.3 billion in a deal universally panned on Wall Street, which expects writedowns on the investment in coming quarters.
According to investors and analysts who attended gatherings in Gotham with Disney’s top brass, Eisner said budget items will be a major focus at a board meeting late this month — meaning more belt tightening is likely. He said continued cost-cutting efforts will save the company $850 million a year.
Eisner mostly deflected the few, and indirect, questions about his future at the company.
No pink elephant
“He said there were no issues with the board, that there is no pink elephant in the room,” said one fund manager who attended cocktails with the Disney crew Thursday evening.
According to this person, Eisner said directors will discuss corporate governance issues at the upcoming meeting and a previously announced decision to reduce the size of the board.
Eisner claimed he’s not interested in expanding Disney’s relatively small 10-station TV group through duopolies.
And Eisner said he thinks “at the end of the day” the company will strike a deal with Pixar — the animation studio headed by Steve Jobs that is reportedly at odds with Disney over renewing its output deal — but he stressed that Pixar’s success is rooted in content, not technology.
Eisner and senior Disney management, including chief financial officer Tom Staggs and chief operating officer Bob Iger, met fund managers and buy-side analysts again Friday morning and lunched with sell-side analysts after that.
The stock closed unchanged at $15.50.
Sell-side analysts more optimistic
The sell-side analysts, who sell company research and investment advice to clients, often on behalf of big investment banks, were generally more upbeat on the confabs than their buy-side peers — who work with fund managers and buy stocks directly for clients, with the clients’ money. Sell-siders appreciated Eisner’s outreach effort, even if they gleaned little new information.
“The gist was that things are so bad, they’re bound to get better,” one said.
“Eisner looked like a man just trying to save his job,” said another.
A few emerged cautiously optimistic. Michael Gallant of CIBC predicted the Mouse would beat market forecasts in the fourth quarter. He’s taking a “wait and see” approach to theme parks and ABC, but expects the release of Monsters Inc. on video this week and stronger ad pricing at the TV stations to provide a cushion.
Disney at critical point
John Tinker of Blaylock & Partners initiated coverage of Disney on Friday with a “hold.” He sees Disney at its most critical point since 1984 when Eisner took the helm and noted that the share price has risen a measly compound-annual 3% over the last 10 years. But he said “any hits at ABC, film blockbusters, or a pickup in theme park attendance” should translate into earnings growth.
He’s worried by a limited mix of assets that aren’t strong cash flow producers over the long term and a debt-laden balance sheet.
Eisner and the 16-member Disney board are also getting heat from investor activist Bert Denton and Providence Capital in the run-up to its crucial September 24 board meeting.
Denton is trying to rally institutional shareholders to push Disney for better corporate governance and a clear operational turnaround strategy. He says he expects roughly 20% of Disney shareholders — along with a host of Wall Street analysts — to turn up at his own Disney forum tomorrow.
Indicative of mood surrounding the Mouse is that the shares remain a favorite of shortsellers — a class of investors that makes money betting a stock will go down by selling borrowed stock and hoping to replace it with cheaper shares bought at a lower price later. About 46 million of Disney’s 2 billion shares are sold short, which is roughly twice the level of the average media company — even embattled AOL Time Warner.