NEW YORK — What’s a little thing like money when you’re hiring a Wall Street darling?
That was the message Wednesday at the Walt Disney shareholder trial as economist Frederick Dunbar disputed earlier testimony in concluding that Michael Ovitz’s supercharged compensation package wasn’t overvalued, at least judging by the reaction of investors.
His reasoning: On the day that Disney announced it was bringing Ovitz in as prexy, Mouse House stock gained a whopping $1.1 billion in value, proving that the Hollywood superagent was just what Disney needed.
“We found (the stock jump) highly unusual. There is one day in a hundred that this might happen,” said Dunbar, an expert witness retained by Disney. “The conclusion that the news was viewed positively by the market also was supported by analyst remarks and news stories that came out afterward.”
Dunbar, who conducted a series of analytical tests looking at the Ovitz hire and stock market reaction, said investors in the market were betting with their dollars that the hiring was beneficial.
His turn on the stand directly contradicted the testimony of UCLA law and economics professor Kevin Murphy, an expert witness for the plaintiffs. Dunbar said Murphy exaggerated the worth of Ovitz’s Disney stock options.
A frustrated-sounding Steven Schulman, who is representing Disney shareholders, repeatedly pointed out during his cross-examination of Dunbar that Wall Street didn’t yet know the details of Ovitz’s pay package when Disney topper Michael Eisner announced the hire Aug. 14, 1995.
It wasn’t until later in September that the Disney board affirmed the appointment, awarding Ovitz an annual $8.5 million pay package, one of the richest in U.S. corporate history. Ovitz also was granted 5 million stock options.
Schulman suggested that Wall Street’s initial reaction to Ovitz was based on spin and that investors didn’t have the full picture.
“If a company puts out a press release which contains unrealistic hype, isn’t it possible there would be a high market assessment because of that hype?” Schulman asked.
Dunbar countered repeatedly that Wall Street investors were savvy enough to anticipate that Ovitz would be paid well, considering his connections and the fact that he was the co-founder of CAA, where he reportedly drew an annual salary of about $25 million.
“The news on Aug. 14 was good. … and the market anticipated more or less correctly that Ovitz was going to be expensive,” he said. “It anticipated more or less correctly what the actual compensation arrangements were going to be for Ovitz. Disney’s philosophy for compensating execs was already known at that point.”
Backing up his point, Dunbar said his analysis found that there was no significant movementon Wall Street once the details of Ovitz’s salary, perks and stock-options package broke. Nor was there any great movement when Ovitz departed the company after a brief, 14-month run with a $140 million golden parachute.
Schulman ended his cross-examination in something of a dramatic fashion, unsuccessfully asking the Chancery Court to strike Dunbar’s qualifications as an expert witness and dump his conclusions.
Dunbar, who is a senior VP at National Economic Research Assn., holds a Ph.D. in economics from Tufts U.
Mouse House shareholders are trying to prove that the Disney board, along with Eisner and other top execs, broke their fiduciary duty in awarding Ovitz so much pay, as well as giving him the $140 million severance package despite his failed run as prexy. They say Disney should have terminated Ovitz for cause.
Throughout the day, Dunbar challenged assertions made by Murphy earlier in the trial. He said that Murphy, who took the stand in late October, was incorrect in valuing Ovitz’s stock-option bundle at $90 million. Dunbar put the value at $60 million.
At times, Dunbar ceded slightly to Schulman, but always returned to his theory that Ovitz’s salary and severance package were acceptable.
“I would say it was a bold move on Disney’s part, but not a move without risks,” Dunbar continued.
Former Disney director Tom Murphy is expected to take the stand today.