Eisner's "Long, Long, Long" Odds

The historic shareholder revolt has cost Disney's honcho his chairmanship. His CEO position is looking mighty tenuous now, too

By Ronald Grover

No wonder Walt Disney (DIS ) Chairman and CEO Michael D. Eisner was in such a rush to adjourn the company's most contentious annual shareholder meeting in years. The Mar. 3 vote that Eisner had dreaded for weeks was as staggering as his critics predicted -- 43% of Disney shareholders withheld their approval for the 61-year-old Disney chief. The result could well mean the end is near for his nearly 20-year rule of the $27 billion entertainment giant.

Already, the shareholder revolt started by former board members Roy Disney, nephew of founder Walt, and Stanley Gold has forced Disney's beleaguered board to split Eisner's existing job in two -- making him relinquish the chairmanship while keeping him on as CEO. In an emergency post-meeting session, the board decided on Wednesday night to name as chairman former U.S. Senator from Maine George J. Mitchell, who has been serving as the board's presiding director.

Cable giant Comcast (CMCSA ), which launched a $54 billion bid to buy the outfit on Feb. 11, says it now wants to meet with 8 of Disney's 11 independent board members. It'll likely press on with its bid to buy Disney. And while Comcast has said it won't increase its existing offer of close to $27 a share, Disney insiders believe the bid will have to rise to nearly $30 a share if the dance is to end in a merger.


  The giant California Public Employees' Retirement Fund, which was among the first to withhold its vote on Mar. 3, immediately called on Eisner to leave by yearend. The Disney board, which had hoped to meet in April to plan the succession process, might now speed up the process and try to find a new CEO by midyear, according to one Disney insider. Eisner's current contract expires in 2006, but this source says "the odds are long, long, long" that he'll fulfill the entire agreement before leaving.

From Mickey and Minnie warming up the crowd in the foyer to the carefully selected questions posed to Eisner, the gathering at the Philadelphia Convention Center had all the trappings of set-piece on how to save the top boss's job. Eisner urged shareholders to keep their questions brief and to please avoid barbed, political questions. But former Disney board member Gold, given 15 minutes to address the overflow crowd at the 3,000-capacity facility, gave a glimpse of what was about to happen by predicting that Eisner would get fewer than 60% of the overall votes counted. He was dead on.

In his speech, Gold, who says he argued loudly for change inside Disney while a board member, argued that "speaking out forcefully against a board of a company that we truly love has been an agonizing thing for me. The most miserable thing that I have ever done." Still, he criticized the board for failing to confront Eisner, even as Disney's earnings wallowed and the CEO clashed with highly regarded executives such as former studio chief Jeffrey Katzenberg and with Pixar Animation (PIXR ) chief Steve Jobs.


  The remarks by Gold and later Roy Disney mirrored the sentiments of large shareholder groups that have in recent days come out against Eisner and his management team. Led by giant CalPERS, which withheld its 9 million shares, the anti-Eisner movement included pension funds from Ohio, New Jersey, and other states -- as much as 15% of the more than 2 billion Disney shareholder votes. Management maintains that some of the voters were "politically motivated" and said it would "analyze very carefully the votes before we make a decision."

However, that decision came more quickly than most observers expected. The board had no choice but to name a new chairman. But in picking Mitchell, the board isn't likely to get the anti-Eisner shareholders off its back. They've heavily criticized Mitchell for a lack of independence during his stint as an independent director.

Clearly, the 43% withheld vote and the loss of his chairmanship are devastating to Eisner. No CEO in recent corporate history has been denied as much as 20% of his shareholders' votes. Ironically, one thing still working in his favor is the pending Comcast takeover bid to create a $54 billion combo. A board move to force Eisner out altogether could make the entertainment giant look weak and open the board to shareholder lawsuits. For that reason alone, Eisner may stay on as CEO and be instructed to open talks with Comcast to determine if the cable operator is prepared to increase its bid. But Eisner's control of the Mouse House has never been shakier.

Grover is BusinessWeek's Los Angeles bureau chief

Edited by Douglas Harbrecht

Before it's here, it's on the Bloomberg Terminal.