Vote Momentum Against Disney's Eisner
By Peter Henderson
LOS ANGELES (Reuters) - Another activist pension fund, North Carolina, on Friday joined at least seven states opposing Walt Disney Co. Chairman Michael Eisner's reelection to the board next week as Disney signaled it did not consider the vote a sweeping referendum on Eisner's stewardship.
Disney, braced for 30 percent of shareholders to oppose Eisner, also on Friday launched full-page advertisements in major newspapers featuring Mickey Mouse and Kermit the Frog and declaring "Our future is in good hands."
The 11-member Disney board is guaranteed to be reelected at the March 3 meeting, since there are no rival candidates, and so the battle is brewing whether to interpret a substantial percentage of votes withheld for Eisner as a call for him to step down or a less direct signal about corporate governance.
Comcast Corp. (NasdaqNM:CMCSA - news) whose takeover bid was rejected by the Disney board, is also waiting in the wings in Philadelphia, coincidentally the city in which Disney's meeting will be held, and analysts said it could pounce again after the vote.
Nell Minow, a governance analyst at the Corporate Library, said the vote would send a message to Comcast and other potential buyers. "The higher the vote of no confidence, the more vulnerable the company is," she said.
Smith Barney analyst Niraj Gupta argued in a note that Comcast could resubmit its $48 billion bid or sweeten it slightly by adding or substituting a cash component to the all-stock offer.
"We believe that Comcast would cite the shareholder vote as evidence that a management change is in order," he wrote.
The Comcast offer is now worth about $3.20 per share less than Disney's shares are trading on the New York Stock Exchange (news - web sites), although the discount has narrowed from $3.60 in mid-February, when Disney rejected the bid. Comcast's all-stock offer represented a 10 percent premium when it was made.
State funds opposed to Eisner hold at least 40 million shares, about 2 percent of Disney stock, and many more are still making decisions.
DISNEY SEES PROTEST OVER DUAL ROLES
A Disney source said that the company was prepared for more than 30 percent of shareholders to withhold their votes for Eisner and that the company saw the signal as a protest, largely inspired by adviser Institutional Shareholder Services, against his combined roles of chairman and chief executive.
Board member Judith Estrin made similar arguments in interviews with major newspapers. The board has not wavered from its public support of Eisner and his strategy for keeping Disney an independent content company focused on household names that range from Mickey Mouse to ESPN, and now include the Muppets after a recent acquisition.
Minow put the influence of ISS at around 10 percent of votes and said the board had wide latitude to interpret and respond to the results of the vote, including simply stepping up communication with investors.
A majority of the 11 board members up for reelection face protest votes or recommendations against them from two major shareholder advisers, major pension funds, or dissidents Roy Disney and Stanley Gold.
The board has reformed its governance rules over the past few years, although critics say Eisner still has too much power and that more reform is needed.
North Carolina Treasurer Richard Moore said on Friday that his state pension funds would withhold votes for Eisner as chief executive and chairman -- although he is only up for reelection to the board -- and withhold votes for the three audit committee members.
"As one of the most visible companies in the country Disney's management needs to be more responsive to its owners. 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," he said in a statement.
Disney shares lost 20 cents or less than 1 percent to end at $26.53 on the New York Stock Exchange on Friday.
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