The Disney dilemma

Despite gains, investors still pressuring board

Investors are keeping the heat on Walt Disney Co. despite strong earnings last week and a lively stock. Today, the heads of six state pension funds plan to meet with Mouse directors at ABC’s Gotham headquarters to raise issues of concern from succession planning to long-term growth.

The 10 a.m. meeting is private but Disney said it will make executives available to the press just after.

While Disney, like most companies, meets routinely with large shareholders, it’s unusual for a group of funds to form a lose coalition of sorts and request a group discussion.

“Whether we see a repeat in ’05 of what we’ve seen in ’04 is largely based on whether investors get a warm and fuzzy feeling for this board of directors. If not, I think investors will keep up their drumbeat of criticism,” said Patrick McGurn, senior VP of Institutional Shareholder Services. His group advised institutions to vote against Eisner’s re-election to Disney’s board at the Mouse’s annual shareholder meeting in March. Many did.

Today’s gathering will include Connecticut State Treasurer Denise Nappier, North Carolina State Treasurer Richard Moore, New York State Comptroller Alan Hevesi and the heads of the giant California Public Employees Retirement System (CalPERS), the California State Teachers Retirement System and the Ohio Public Employees Retirement System.

Succession will likely be a hot-button issue as these investors, like most, are curious about the company’s plans when Eisner’s contract expires in 2006. And some question the choice of board member and former U.S. Sen. George Mitchell as the most qualified candidate to serve as chairman — especially since he didn’t receive a ringing endorsement from shareholders at the annual meeting either.

Disney’s board has steadfastly backed Eisner. The board’s brief comment to that effect after a two-day meeting last month enraged the Mouse’s most vocal and tireless critics, Roy Disney and Stanley Gold. While the duo have started to grate on the nerves of some in the investment community, their anti-Eisner campaign could regain momentum at any time if fueled by real discontent among the shareholder base.

One investor said Disney’s board tends to be considerably more open and direct and less into “circle the wagons mode” in private meetings than in public comments.

And there’s some been some good news. The Mouse reported surging profits last week on the strength of theme parks and cable networks. The numbers impressed many on Wall Street and appeared to give Eisner some breathing room.

However, some investors remain jittery over Disney’s longer-term prospects, particularly if ABC’s ratings continue to stagnate and the box office doesn’t pick up.

Disney is anticipating strong numbers for its entire fiscal year, which ends in September. But succession and long-term growth are entwined for some investors who believe Eisner wounded the company by his lack of vision and creative, strategic management.

Disney shares rose 0.22% Thursday to close at $23.05.

Separately, it seems that a firm number has at last been placed on the hefty but unspecified exit package of former Mouse chief operating officer Michael Ovitz — $109.3 million. The Los Angeles Times reported Thursday that Eisner’s former henchman received a $38.9 million cash payout when he departed and reaped $70.4 million in later years by exercising options.

Ovitz, apparently due to poor financial advice, failed to exercise another set of options worth more than $120 million.

Eisner’s unilateral hiring and costly firing of Ovitz soon after was the subject of a shareholder lawsuit against Disney.