Philly Fracas

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The Walt Disney Co. honcho Michael Eisner avoided total disaster, for the time being, last week despite suffering what's been called the biggest no-confidence vote in U.S. corporate history.

After a highly organized "Save Disney" campaign culminated in 43% of shareholders withholding their votes for him as chairman at Disney's annual shareholder meeting here on March 3, Eisner was stripped of the chairman title but — with the backing of the board of directors — kept his job as CEO.

Eisner was hoarse and appeared occasionally miffed at the stream of shareholder invective sent his way during the shareholders' meeting March 3. But he kept his temper in check and remained on message, emphasizing Disney was better off than it was the year before and well-positioned for the future.

"I love this company," Eisner declared. "The board loves this company. And all are passionate about the output of this company."

The day after Eisner's two most vocal critics — former board members Stanley Gold and Roy Disney — staged a pep rally for hundreds of their shareholding backers, Gold and Disney were given a chance to state their case early in the meeting.

"The board has a second chance to do what is right," Gold said during his stint. "No half-measures, no excuses will be tolerated. Michael Eisner must leave now."

Gold was able to predict that 40% of shareholders would withhold their votes for Eisner, and was proven right.

A preliminary count released after the five-hour spectacle — and after various unit chiefs, including ABC Cable Networks president Anne Sweeney and ESPN Inc. president George Bodenheimer, had extolled their results — showed 771.7 million shares had withheld support for Eisner, or about 43% of the 1.8 billion shares eligible to vote.

Hours later, in a move Disney had leaked to some media before the meeting, it was announced that current board member and presiding director George Mitchell was named to the newly created post of non-executive chairman of the board.

Mitchell, the former U.S. senator known for brokering a peace agreement in Northern Ireland, isn't much more popular with unhappy shareholders than Eisner: About 24% of votes for Mitchell's re-election to the board were withheld at the meeting.

"I think this whole episode has shown Disney is a little tone deaf," one cable executive, who asked not to be named, said afterward.

Most stock analysts had similar reactions.

"While we understand the Disney board's desire for a quick response to the significant 'withhold' vote at yesterday's annual meeting, we believe their answer was highly inappropriate and has the appearance of trying to protect CEO Michael Eisner, rather than producing the 'true' change needed to satiate investors," Fulcrum Global Partners analyst Richard Greenfield wrote in a report.

Greenfield also failed to see the logic in appointing Mitchell chairman, as he lacks experience at running a media company; serves on the boards of several other companies (a potential time drain); and his law firm has strong ties to Disney and Eisner, diminishing his independent status.

In a statement, Disney said that while it is aware of additional shareholder issues, it believes Mitchell's appointment addresses the most pressing problem — that of corporate governance.

Comcast, which made a $66 billion unsolicited bid for Disney on Feb. 11 — spurned by Disney's board one week later — urged Disney's independent directors to "immediately meet with Comcast so we can directly present our full and generous proposal and the benefits of the merger."

But Comcast hasn't raised its offer, and Disney restated its view that the offer is "inadequate."

Comcast's bid has fallen to about $62 billion now that Comcast's stock has dropped, and on a per-share basis, it's fallen below Disney's current value.

Comcast executive vice president David Cohen declined to comment beyond the MSO's statement. "I think I would say the ball is in The Walt Disney Co.'s hands," he said in an interview.

He also said last Thursday that Comcast hadn't spoken with Disney management and hasn't had substantive discussions with Gold or Roy Disney — and has had no contact with Gold or Roy Disney since the meeting.

TWO ANALYSTs' TAKES

One analyst last week, Citigroup Smith Barney analyst Niraj Gupta, said Comcast would likely raise its bid to $28 or $30 per share, from about $23.95 per share now — well below Disney's March 4 closing price of $26.80. But he said that scenario could take as long as six months to play out.

"We believe Comcast will stay disciplined in its pursuit of Disney," Gupta wrote.

Others seem inclined to think Comcast would walk away if Disney doesn't invite it to the negotiating table.

In a report, UBS Warburg analyst Aryeh Bourkoff wrote that Comcast would likely only extend the chase for weeks, not months, and won't increase its offer until Disney agrees to formal negotiations.

"We believe if Comcast is not welcomed into official negotiations with Disney in the coming weeks, allowing for things to settle somewhat, Comcast will likely walk away from this potential deal for the time being and focus on growth in its cable business," Bourkoff wrote.

Cohen wouldn't comment about Comcast's plans.

COMCAST GOVERNANCE

Comcast could soon be facing its own corporate-governance headaches.

According to published reports, the AFL-CIO plans to launch a "Vote No" campaign against Comcast CEO Brian Roberts at the MSO's annual meeting this spring. The union cites Roberts's chairmanship of the board's governance and directors nominating committee.

The Communications Workers of America joined in, and had members among the groups demonstrating against Comcast outside of the Disney meeting.

Last Tuesday, consumer groups took the opportunity to denounce Comcast — and particularly a combined Comcast-Disney — at a press conference at the same hotel where Gold and Roy Disney held their rally.

"Comcast is clearly too powerful, with a dominant position in multichannel and broadband, and we intend to fight them all over the country," Center for Digital Democracy executive director Jeff Chester said after the press event.

Beth McConnell, state director of the Pennsylvania Public Interest Research Group, said her group is concerned that if Comcast has to overpay for Disney, "those costs are going to passed along to the consumers."

Cohen shrugged off the complaints.

"I think the so-called demonstrations over the last couple of days are remarkable for a number of reasons," he said. "First of all, how sparsely attended they were. Second of all, it was really a collection of the usual suspects with a variety of grievances, most of which have nothing to do with Comcast. And even the ones that have something to do with Comcast are mostly directed at other issues.

"The CWA is not on the forefront of defending access of customers to media choice. The CWA is angry at us because our employees repeatedly vote not to be represented by them because of the pro-worker, pro-employee reputation of this company."

NO WITHHOLDING

Cohen also dismissed concerns that a combined Comcast-Disney could withhold programming from other distributors. Comcast, like other cable operators, is subject to federal program-access rules that require MSOs to make satellite-delivered programming available to all distributors.

"The only way we could do that is by violating the law," Cohen said.

That rule doesn't apply to terrestrially transmitted networks, a loophole Comcast has exploited to keep its Philadelphia regional sports network from satellite operators.

Cohen called it premature to speculate whether or not Comcast would make that network available were it to win Disney.

"If the FCC said that to us, we would say to the FCC, 'What about NFL Sunday Ticket?' " Cohen said. "DirecTV has an exclusive for [the National Football League] that is not made available to cable, including Comcast.

"What do you think the more valuable package is — the NFL on a national basis, or a select number of Phillies, 76ers and Flyers games?"

Kent Gibbons contributed to this report.

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