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Walt Disney Shareholders Meet

Walt Disney Company shareholders cast the future of its longtime chief executive, Michael Eisner, into some doubt on Wednesday when more than 40 percent voted against his re-election to the company's board. After a background report, Terence Smith discusses Disney's investor revolt with media analyst Tom Wolzien.

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  • TERENCE SMITH:

    The Walt Disney company's annual shareholders meeting in Philadelphia today was vintage Disney, with Snow White, Mickey Mouse, Minnie Mouse and Cinderella in attendance. But it quickly became clear that there are clouds gathering over the Magic Kingdom.

    Michael Eisner, who has headed the huge media and entertainment conglomerate for two decades, is battling a full-blown shareholder revolt designed to push him out of his job. His critics complain that under his sometimes abrasive leadership the company and its stock have under performed for several years, returning about half the average market gains since 1994.

  • ROY DISNEY:

    I used to say actually if I had enough rifles we could have this thing over with.

  • SPOKESMAN:

    Careful.

  • ROY DISNEY:

    But I didn't say that.

  • TERENCE SMITH:

    The commanding general of this unlikely shareholder revolt is Roy Disney, nephew of Walt and 36-year director of the company until last November, when he and fellow director Stanley Gold jumped, before they were pushed, from the company board. They immediately launched the "Save Disney" campaign with one target in its crosshairs.

  • ROY DISNEY:

    Management has failed miserably at creating increased value for shareholders. Indeed, despite some recent short-term gains, which actually only put us back where we were eight years ago, they have been devaluing our assets, turning a unique institution into just another entertainment company.

  • TERENCE SMITH:

    Opening the annual meeting this morning, Eisner defended his performance, said the stock had increased 60 percent in the last year, and asserted that the company is rebounding under its current leadership.

  • MICHAEL EISNER:

    I love this company — the board loves this company. And we are all passionate about the output from this company. In short, our message to you today is simple — your company has the management skill and creative talent to continue its growth path moving aggressively into the future by building on the strength and on its legendary heritage.

  • TERENCE SMITH:

    Eisner is under assault from multiple quarters — wall Street analysts, pension funds that hold large blocks of stock, as well as unhappy shareholders. On the eve of the annual meeting, more than 1,000 dissident shareholders lined up outside a Philadelphia hotel to vent their discontent.

    As many as 600 more could not fit into the rally, organized by Roy Disney and his "Save Disney" campaign. Shareholders Justine and Robert Graham explained why they made a pilgrimage from their home in Wilmington , Massachusetts.

  • JUSTINE GRAHAM:

    The old Disney, the one I grew up with – The Wonderful World of Disney on Channel 4 – I looked forward to as a child to watch that at night, it had a lot of heart, a lot of beauty and gave me a lot of happiness and I don't like to see something like that become passe.

  • ROBERT GRAHAM:

    It's not people are paying attention. They're not buying the idea that things are okay. And that either clean up your act or you certainly won't be re-elected next time.

  • TERENCE SMITH:

    At a news conference, Stanley Gold acknowledged that the chairman could not be deposed at today's meeting since Eisner and the current board are unopposed for re-election. But he warned …

  • STANLEY GOLD:

    We will not go away. We will be here. We will continue this campaign to oust him. We will be here next week, next month, next year.

  • TERENCE SMITH:

    The "Save Disney" campaign got a huge boost in recent days when public employee pension funds in California, Oregon, Massachusetts, North Carolina, Ohio, Connecticut, Florida and New Jersey announced that they would withhold their support from Eisner. Christie Wood, senior investment officer of the $165 billion CALPERS, the California fund, objects in part to Eisner's huge compensation over the years.

  • CHRISTIE WOOD:

    He's taken $700 million out of the company since 1996, or realized that as compensation of some sort. What I would say is that it seems like a large number given the fact that the stock price hasn't been a good performer – in fact has lost shareholders' money over the last five years.

  • DEMONSTRATOR:

    Creepy-crawly in our house, don't let Comcast buy the mouse.

  • TERENCE SMITH:

    Outside the annual meeting, union and public interest demonstrated against the proposed acquisition of Disney by Comcast, the Philadelphia-based cable giant. Comcast originally offered $54 billion for Disney, but the company's board rejected that as too low. Pennsylvania AFL-CIO president Bill George objected to the potential layoffs in any such merger.

  • BILL GEORGE:

    I'm going to tell you what is going to happen when they get done with this merger. Donald Duck and Mickey Mouse and Pluto are all going to be looking for jobs.

  • TERENCE SMITH:

    After a sometimes contentious meeting from which cameras were barred after opening statements, some 43 percent withheld their votes from the chairman. Eisner retains his job for the moment, but the board may have to respond to such a strong expression of discontent.

  • TERENCE SMITH:

    Joining me now is Tom Wolzien, senior media analyst with Sanford C. Bernstein and Company, who attended the Disney shareholder meeting today. Tom, thank you for joining us. What was it like in that extraordinarily long meeting? It went on for more than five hours. What was the atmosphere?'

  • TOM WOLZIEN:

    Well, it was a hall that held 500 people and another 400 or 500 in the spillover facility. Most of the people in the room were small shareholders who came in to express their support for Roy Disney and their opposition to Michael Eisner, so it was a very vociferous group for the first part of the session.

    Then, the company put virtually every one of its unit divisional managers up to talk about how things were going. That's really the reason that the session went on for about four hours and something.

  • TERENCE SMITH:

    And did some of the shareholders confront Michael Eisner?

  • TOM WOLZIEN:

    There was a lot of confrontation during the session — during the Q and A part of the session — where basically people were saying you lost value in our stock over the last five years, that we don't think that Disney has the same magic that it used to have.

  • TERENCE SMITH:

    This 43 percent that decided to withhold their vote, put that in perspective for us — how high it is relative to others.

  • TOM WOLZIEN:

    Well, in recent media history the last vote that was withheld was a 22 percent vote at then AOL Time Warner where that was enough to drive chairman Steve Case out at 22 percent.

  • TERENCE SMITH:

    So what, given this vote, is the board likely to do now?

  • TOM WOLZIEN:

    The board has been looking at the idea, one of the proposals, to split the championship and the CEO so effectively the CEO is not reporting to himself. That's almost assured to happen at this point. That was one of the principal reasons that was given for the withholding of votes for Michael Eisner. So that's a for sure.

    How far beyond that it goes, whether there's ultimately whether Mr. Eisner leaves the company completely as a result of this is difficult to tell. The problem the board really has in sorting out is what is its fiduciary responsibility of looking at a 43 percent withhold. What's it fiduciary responsibility to the shareholders or more bluntly, can it be sued if it keeps Eisner around?

  • TERENCE SMITH:

    Does this make, in your view as an analyst, does this make Disney more vulnerable to a hostile takeover bid such a Comcast put forward last month?

  • TOM WOLZIEN:

    Well certainly it gives Comcast a good other chance to come back in and Comcast late today indicated that it had some interest in having further discussions with the independent directors. However, the Comcast bid, the way it stands now is about $23 a share for Disney's stock that is up in the 26, 27 range. And I think most people would think it has to get up to close to 30 to make sense for the Disney board to really seriously consider it.

  • TERENCE SMITH:

    Might this encourage other conglomerates to come forward?

  • TOM WOLZIEN:

    Difficult to say. The normal suspects basically said they're not interested — other media companies. But you know when you go through the history of media, you never know who is going to get bitten by the Hollywood virus.

    I mean, who would have said that Matsushita, Panasonic would have bid for Universal or Seagram's or Vivendi, so you just really don't know if somebody is going to come in out of the woodwork, but as far as the normal media players, it doesn't look like there is anybody there is ready to go.

  • TERENCE SMITH:

    Does it seem to you, as an analyst, like we are now in a new era of more vigorous shareholder momentum and expressing of opinion?

  • TOM WOLZIEN:

    I think so. I think as long as the stock prices were high and running up in the late 90s, everybody just would love to take the money. Then, during the first part of the 2000s, people were kind of shell shocked and trying to figure out what they had left. And I think now they're at the point of recovering and saying hey, wait a second.

    It's my money. It's my share. The other side of that is however, all of the people today who are protesting could have sold out of Disney and put their money somewhere else when where they thought it might have been done better. They didn't have to stay there and keep their money. They were not locked into this company.

  • TERENCE SMITH:

    Tom Wolzien, thank you very much.

  • TOM WOLZIEN:

    Thanks, Mr. Smith.

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