Philly Festivities Won't Be Any Fun For Eisner

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Several major holders of Walt Disney Co. stock dealt another blow to chairman and CEO Michael Eisner last week, increasing the possibility that as much as 30% of Disney's stockholders would vote "no" to his re-election to the board of directors of the entertainment giant at its March 3 annual meeting of shareholders in Philadelphia.

Eisner has been under siege over the past few months, starting with former Disney board members Roy Disney and Stanley Gold calling for his ouster because of what they said was gross mismanagement.

That dissension was increased earlier last month when Institutional Shareholder Services recommended that its clients — representing about 30% of Disney shares — withhold their votes from Eisner because of corporate governance concerns. Also last month, advisory firm Glass Lewis & Co. advised its clients (who own 15% of Disney shares) to withhold their votes for Eisner and two other Disney directors: former U.S. Sen. George Mitchell and Northwest Airlines Chairman Gary Wilson.

Last week shareholders began taking that advice, with state pension funds in California, New York, New Jersey, Connecticut, Massachusetts and Virginia stating they would withhold their votes from Eisner and some current Disney directors. Combined these funds own 30 million Disney shares.

According to published reports, Disney has conceded that Eisner could lose as much as 30% of the vote for re-election.

Among those funds that have joined the anti-Eisner bandwagon are the New York State Common Retirement Fund, a $118 billion state pension fund that owns about 8.7 million shares of Disney stock. The New York pension fund joined the California Public Employees Retirement System (CalPERS), the largest state pension fund in the country with $155 billion in assets and 9.9 million Disney shares.

"Under Michael Eisner's management, Disney has not performed well over the last several years," New York State Comptroller Alan Hevesi said in a statement. "His tight control over Disney decision-making and his role as both CEO and chairman of the Board call into question his commitment to corporate governance reforms."

Hevesi is the sole trustee of the New York State Common Retirement Fund.

CalPERS was even harder on Eisner.

"We have lost complete confidence in Mr. Eisner's strategic vision and leadership in creating shareholder value in the company," CalPERS said in a statement. "Shareholders should send the message loudly and strongly that it is time for Disney to get a more focused strategy."

Another major Disney shareholder in California — the California State Teachers Retirement Fund (which has almost 8 million Disney shares) also said it would withhold its votes from Eisner.

Eisner's election is not in jeopardy because he is running unopposed. But some analysts believe that if a large enough group of shareholders decline to vote it could pressure Eisner to step down.

Equally damaging to Eisner were documents involving the hiring of former Disney president Michael Ovitz in the mid-1990s, released by the Delaware Court of Chancery as part of a shareholders lawsuit. In a series of letters to Ovitz, it appears that Eisner hired him without consulting the board. Eisner failed to consult the board again when he fired Ovitz a year later.

A sizeable vote of no confidence also could be a favorable signal to Comcast Corp., which made a $60 billion unsolicited all stock bid for Disney on Feb. 11. While Disney rejected the offer as too low, Comcast could modestly increase the offer — to, say, $30 per share — and sell Disney shareholders on its experienced management team.

Stifel Nicolaus & Co. cable analyst Ted Henderson said that while a no-confidence vote on Eisner would benefit Comcast, he expects the MSO to wait before upping its offer.

"Comcast can afford to be patient," Henderson said. "What happens next week will be important if Eisner's ousted, then I think you play the card a little harder from a Comcast standpoint going you not only get to merge with the biggest distribution footprint you also get [cable division president] Steve Burke."

Henderson added that because no other bidders for Disney have emerged yet, Comcast can wait it out.

"Comcast's strongest negotiation is to just sit back and be patient, to continue to say 'We made a fair bid, go ahead and operate without us, we'll be back a year from now.' I think that would be an awesome statement to make out to the public."

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