Can Michael Eisner Hold The Fort?

Having fired the first volley, Disney stockholders are in no mood to back off

Sometimes life really does imitate art. Walt Disney Co. (DIS ) is preparing to release a much-delayed movie about the Alamo massacre. Just like Jim Bowie and Davy Crockett, embattled Disney Chief Executive Michael D. Eisner and new Chairman George Mitchell are facing more than a few hostiles. Some folks are betting they'll be on the losing end, too.

Institutional investors, who tasted first blood with their 43% no-confidence vote in Eisner on Mar. 3, are in no mood to break off the attack. "This isn't over because Disney changed some titles," says Cynthia Richson, corporate-governance officer at the $59 billion Ohio Public Employees Retirement System, which withheld its 4.7 million votes from both Eisner and Mitchell.

Richson is finding plenty of support. She is forming a shareholder committee to make sure that Mitchell stays as independent from Eisner as the new chairman promised. Ideally, though, Richson believes that the board should replace Mitchell, a former U.S. senator who has been a board member for nine years. Meanwhile, staffers at the $116 billion California State Teachers Retirement System, which owns nearly 8 million Disney shares, are forming their own shareholder committee to review Disney's next steps. Says board member and California State Controller Steve Westly: "Major shareholders intend to keep pressure on Disney's audit committee, its compensation committee, and the management."

Eisner's leading critics, former board members Roy Disney and Stanley Gold, continue to drum up allies in a push to oust Eisner. For instance, according to knowledgeable sources, Gold has talked with influential media investor Gordon Crawford, a senior vice-president of Capital Group. Crawford withheld Capital's 7 million votes from Eisner. A Capital spokesman would not confirm any talks with Gold. Disney officials also declined to comment.

Getting Eisner out could be a lengthy affair. He has said he won't leave before his contract expires in 2006. Moreover, the board is reluctant to shake up management with another bid for the company likely from cable operator Comcast Corp. (CMCSK ). Critics are looking for at least a formal succession plan -- or a timetable for Eisner's retirement -- when the board meets in late April.

SIGNS OF STIRRING? Gold and Disney have contemplated -- but rejected for now as too expensive -- a "consent solicitation" of Disney's 3 million shareholders to run their own slate. Or they could wait until next year's annual meeting to run a minority slate. This will be allowed if the Securities & Exchange Commission rules this summer that investors can place their own candidates on the official ballot at companies where 35% of shareholders withheld votes for a director the previous year. "The Eisner vote is Exhibit A in why this rule is needed," says North Carolina Treasurer Richard H. Moore.

Eisner's best defense may be that Disney is showing signs of stirring. Operating earnings more than doubled in the quarter ended Dec. 31, fueled by DVD sales of Finding Nemo and Pirates of the Caribbean. Earnings this quarter won't be as robust, but Merrill Lynch & Co. (MER ) analyst Jessica Reif Cohen expects better theme-park attendance to offset far lower studio earnings and help boost operating profits by 15%. Disney still faces some bumps, such as a Mar. 31 deadline for restructuring the bank debt at its wobbly Disneyland Resort Paris and a couple of risky $100 million flicks. Disney isn't sure how The Alamo will do. Or its animated film, Home on the Range. But at least it changed the title from Sweating Bullets, which is what some Disney execs are doing right now.

By Ronald Grover in Los Angeles, with Amy Borrus in Washington

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