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At Disney, Showdown or Letdown?

By Ronald Grover Dec. 3 was supposed to be showdown day in the year-long tussle between Disney (DIS) CEO Michael D. Eisner and former Disney board members Roy Disney and Stanley Gold, who have been waging a war to oust Eisner. This Friday is the deadline for submitting names of potential board members. Roy Disney and Gold had hoped some fresh faces on the media giant's 11-member board would bring about major changes at - starting at the top.

But a funny thing happened on the way to the battlefield. In recent months, Roy Disney and Gold have been outfoxed by Disney's board, which started its own search process to replace Eisner and seems to be casting a wide enough net to include some of Hollywood's most powerful players.

Worse yet for the former Disney directors, the company finally seems to be in the early stages of what could be a sustained turnaround. The shareholders who were so restless at last year's annual meeting - 45% of whom voted to reject Eisner as a board member - are much happier campers today.

BONA FIDE HITS. Disney's stock is up some 16% this year, compared to 6% for the S&P 500-stock index, while other media companies are down. Some analysts think the $26.88 stock is headed to more than $30 a share. Disney has just reported a 75% increase in annual earnings (off a modest year in 2003 and some terrible prior years), to $2.3 billion, and its sad-sack ABC network has a couple of bona fide hits: Desperate Housewives and Lost. The Disney board has predicted double-digit earnings growth through 2007.

The resourceful Gold and Roy Disney may still launch their own slate of candidates on Dec. 3. They're said to have hired recruiter Korn/Ferry International to find a half-dozen potential board members, and last I heard from Gold, they had lined up some strong candidates.

The two former Disneyites correctly point out that for all of Disney's earnings growth and stock movement, it's pretty much back where it was in the mid-'90s -- before the ABC acquisition sent the company reeling. And Disney still has its share of problems, not the least of which is that Steve Jobs and his hit-making Pixar Animation Studios (PIXR) are likely to walk next year after a 13-year relationship. The Gold-Disney camp did not return phone calls seeking comment for this story.

ANYONE BUT IGER. Still, it looks as if the Disney board has beaten Gold and Roy Disney to the punch, rendering any moves on their part moot. After Eisner announced in September that he will step down when his contract expires in September, 2006, the board immediately launched a search for a successor, which is expected to be completed by next June.

Given that the board meeting is scheduled for three months earlier, it's unlikely that any new members could make much of a difference in the search. Plus, Disney Chairman George Mitchell, another Gold-Disney target, has said that he will retire before the 2006 annual meeting.

Indeed, Gold and Roy Disney have praised the board publicly. A week after it announced the search for Eisner's successor, the two issued a statement saying "the board displayed precisely the kind of leadership and independence which we and the vast number of shareholders who share our concern had been requesting."

Privately, Gold and Disney have said they want anyone but Disney President Robert Iger to replace Eisner. Iger, who was singled out by the board as the one internal candidate and praised as "an outstanding executive" and "highly qualified," is clearly the front-runner. He also has strong ties to Eisner, which has Gold and Roy Disney fearing that Eisner could still wield great influence in an Iger-run Disney. They prefer someone like News Corp. (NWS) President Peter Chernin or Viacom (VIA) Co-President (and CBS honcho) Leslie Moonves instead.

ROWDY MEETINGS. Disney looks like it isn't taking any chances with next year's board meeting. The most recent one, held in March in Philadelphia, drew huge crowds of protestors. While the actual time and place for the 2005 meeting won't be announced until mid-January, the buzz at Disney is that the meeting may be held in Minnesota in February or early March -- a tough place to draw a crowd of angry - or any - shareholders.

That doesn't mean that Disney's next annual meeting will be a love fest, however. There's the Pixar problem, and the current court case that has disgruntled shareholders suing over a $140 million payout to former Disney President Michael Ovitz. And Disney annual meetings can be surprisingly rowdy affairs, regardless of where they're held.

Gold and Roy Disney, who are believed to still own more than 17 million shares of Disney stock between them, will no doubt troop to Minnesota - or wherever - to plead their case once more. But with Eisner on his way out and new management pending for the board, it will be a weaker case.

Then again, you could argue that the dynamic duo has already done its job. Maybe they didn't get outfoxed after all. Grover is Los Angeles bureau chief for BusinessWeek

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