NEW YORK — Faced with the prospect of disgruntled Mouse House shareholders certain to be heard loud and clear at this month’s stockholders meeting, Michael Eisner has decided to make a preemptive strike.
The Disney topper will hold a series of tete a tetes with analysts at Disney’s Times Square studios today. While Disney officials insisted the meetings were routine, their timing of the sessions and the mounting pressure to turn around the conglom’s sputtering stock suggest Eisner is on a mission.
Eisner will apparently be re-emphasizing and clarifying previous disclosures. In fact, over the last two months, Disney has become more proactive in its communications with Wall Street, said one analyst, who praised Eisner’s and CFO Tom Stagg’s efforts to be more upfront with the investment community after years of bumpy and sometimes obstructive relationships.
Despite the peace mission, Eisner may be focused on the new thorn in his side: Bert Denton and private equity group Providence Capital Inc. In the run-up to a pivotal Disney board meeting later this month, Disney shareholder Providence announced Wednesday that it will host its own meeting for institutional shareholders of Walt Disney in order to discuss issues that have “undermined investor confidence” in the firm.
Outline for change
Denton believes still more pressure must come from the outside. He told Daily Variety that he believes Disney is trading at half of its private market value. With the board meeting set for September 24th, “shareholder activist” Denton is hoping to coagulate shareholder concerns into a single, powerful message to Eisner and his board to come up with a succession plan, re-constitute the board to weed out cronies, and turnaround performance at ailing divisions like ABC. Denton said he had a “constructive” talk with Staggs on Monday.
Disney’s unusually flat shareholder structure — only one large institutional investor (Barclays Global) with 40% of the shares held by individuals and lots of indexed funds — may be one reason for the fragmented response to its woes. Prudential analyst Kathy Styponias said it was unprecedented to see a disgruntled investor group stage a public meeting about a company. Most mutual funds, which constitute a large majority of Disney’s publicly traded shares, are limited in their involvement in the firm by law.
With a reputation as a private investor pit-bull, former DLJ banker Denton and his 11-year-old, New York-based fund focuses on long term “value” ivnestments. He typically puts his money in under-performers, then lobbies CEOs and other institutional holders to push for change. Recent efforts have included Tyco, whose shareprice rallied with the installment of new chairman Ed Green, who has embraced corporate governance as a top concern.
Providence Capital’s fund managed a 30% return in 2001 and this year is said to be outperforming the market at around +1%. The fund won’t disclose the total amount of capital it has under management, but its primary fund (and one new one currently under construction) is comprised of 15 “undervalued” companies that all have either operational or corporate governance issues that, once resolved, can significantly improve share price over the long run.
In Disney’s case, operational and corporate government issues are interlinked, Denton said.
Theme Parks’ lack of attendance and ABC’s lack of audience “won’t be fixed overnight,” he said. “But if Disney can “give the market confidence that its board is strong enough to give management solid direction over the next 2-3 years, I think you can expect to see a share price improvement.”
Less artsy board
Denton predicts two to three current board members will step down at the upcoming board meeting, and is hoping that at least one replacement will be a new member from a management and industrial background with knowledge of turnarounds. “The board needs less academic and artistic members and more heavy duty industrial execs that are strong-willed and good at running companies,” he said.
Whether he proves a persuasive advocate or merely a gadfly, Denton is determined to be the voice of what he claims are thousands of rankled shareholders who’ve watch the stock lose 32% of its value in the last year alone.
“My advice to Eisner is that you can buy more time with the board if you assuage shareholders,” said Denton.
(See how Disney’s stock fares at Variety.com/stocks)