Support building to remove Eisner

THE BALTIMORE SUN

Support of an effort to oust Walt Disney Co. Chairman Michael D. Eisner is building momentum as some of the company's largest and most influential shareholders are calling for change and criticizing him for poor performance and lack of leadership.

The battle between Eisner and a growing number of disgruntled investors, including former director Roy E. Disney, the nephew of the late Walt Disney, is building to a crescendo as the company prepares to hold its annual meeting Wednesday in Philadelphia.

The swelling support for change has some experts convinced that it is only a matter of time before serious action is taken, perhaps resulting in Eisner's resignation.

"Something will have to give," said Charles M. Elson, a corporate governance expert at the University of Delaware. "You have a number of holders who are very troubled with the management of the company and the board."

"All I know is the one thing I can feel fairly confident about ... is that there is going to be a change," said Jeff Pittsburg, an analyst at Pittsburg Research Inc., an independent research firm in Great Neck, N.Y. "I have heard everything from the guy [Eisner] is toast to whatever."

The ranks of angry investors continued to swell yesterday.

Richard Moore, state treasurer of North Carolina, told money managers with the state's retirement system to withhold their votes for Eisner and three audit committee members. The system holds more than $56 million in Disney stock.

"The failure of the company to generate long-term value for shareholders combined with their past inattention to good corporate governance practices has forced us to take this step," Moore said in a statement. "As one of the most visible companies in the country Disney's management needs to be more responsive to its owners."

North Carolina joined the state pension funds of New York, Massachusetts, New Jersey and Connecticut, which said Thursday that they would not vote for Eisner. They followed two giant California pension funds, California Public Employees' Retirement System, also known as CalPERS, and the California State Teachers' Retirement System. The two hold about 17 million Disney shares combined, a fraction of the 2 billion total shares outstanding.

Also, a top executive at T. Rowe Price Associates Inc., a Baltimore-based mutual fund company, said yesterday that the company would not vote its 19.3 million shares as a protest against management.

"Our view is that there have been a number of recurring issues over the years involving the performance of the company, involving corporate governance issues, involving executive turnover questions that basically call into question much of what the company has been stating in terms of its performance," said Brian C. Rogers, the company's chief investment officer and head of the T. Rowe Price Equity Income Fund. "I don't necessarily want him [Eisner] out at all. I think they have to run the company with a little more of a shareholder orientation."

Disney officials did not return phone calls, but acknowledged that more than 30 percent of the votes cast at the annual meeting could go against Eisner, according to The Wall Street Journal.

Eisner has tried to counter the onslaught by meeting with Disney investors.

Last week, he spent about an hour with an executive of the Torray Cos., a Bethesda-based money management firm that owns about 5 million shares of Disney, said Robert Torray, who is chairman. Torray said the meeting went well.

"I think they have done a good job," he said. "I don't think the complaints that some of these people have are that valid. ... They just don't like Eisner ... and they can't control him. But after all, who are they?"

One of Eisner's most outspoken critics has been Roy Disney, 74, who holds about 17.3 million shares of stock, and resigned from the board in November after he apparently was told that he was too old to be renominated. He has teamed up with Stanley P. Gold, another former Disney board member.

The two have launched a campaign against Eisner among shareholders that has been growing by the day. A Web site, savedisney.com, urges shareholders to vote out Eisner and provides step-by-step instructions on how to exercise votes.

Roy Disney and other disgruntled shareholders complain that under Eisner the company's share price has suffered, falling $17 a share, or nearly 40 percent, since the stock hit $43.63 in April 2000. It is up 13.7 percent this year.

They also complain that profits, although picking up, have been weak, that performance of Disney's theme parks and its ABC television network have been lackluster, and that many talented executives have bolted from the company.

A month ago, Pixar Animation Studios abruptly ended a partnership that resulted in blockbuster movies like Toy Story and Finding Nemo.

"The revolving door of executives have also led to an enormous loss of creative talent, once the clear hallmark of Disney," Roy Disney and Gold said in a letter to Disney shareholders last month.

"Certainly things ... have started to turn sour," said David C. Joyce, a cable and media analyst at Coral Gables, Fla.-based Guzman & Co. "There is a pattern of highly talented people who have come to Disney ... but have left. My sense is it is due to Eisner's micromanaging of everything."

The battle, which began about three months ago, is filled with irony. Roy Disney helped hire Eisner in 1984 and now would relish his ouster. Disney's annual meeting also will be held in Comcast Corp.'s back yard, Philadelphia.

This month, Comcast, the country's largest cable operator, launched a $66 billion hostile takeover for Disney, which would create the world's largest media and entertainment conglomerate.

The bid was unanimously rejected by Disney's board because the stock offer was $3.60 less per share than the market price of Disney's stock.

At Disney's annual meeting next week, Eisner and 10 other directors will be up for re-election. But since they are running unopposed they can't be forced off the board as long as they receive some votes.

But most observers say that if a large number of shares are withheld, a strong message will be sent.

"Obviously, we are at the inflection point of a change," Pittsburg said. "I don't know whether Mr. Eisner is there or not."

Rogers said the time is right to send a message to the board.

"It is not much more complicated than that," he said.

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