Michael Eisner had been reluctant even to make the trip.
The destination was Sun Valley, Ida., and the occasion was investment banker Herbert Allen’s annual entertainment industry conference. One year earlier, Eisner, the Walt Disney Co. chairman, had abruptly departed the same conference after suffering chest pains and returned to Los Angeles for emergency heart-bypass surgery.
This time, however, Eisner’s attendance led to something quite different: Because of a chance meeting at the Allen & Co. Sun Valley conference, the $19-billion deal to merge Disney and Capital Cities/ABC was born.
For on Thursday, July 13, Eisner “bumped into” Cap Cities shareholder Warren Buffett in the bracing noontime air of the Idaho resort.
“I blurted out, ‘You wouldn’t be interested in selling the company for cash, would you?’ ”
As it happened, Buffett was on his way to see Capital Cities Chairman Thomas S. Murphy.
“He said he was going right then to have a picnic with Murphy. He walked me 100 yards down the road to [Murphy’s] car, and we discussed it. That was the beginning of the negotiations.”
Chemistry Was the Key
The coming together of these two major entertainment companies in the largest merger in Hollywood history differs radically from the normal life cycle of corporate mergers.
Where many such deals are preceded by days or weeks of increasingly detailed rumors, the Disney-Cap Cities deal was done without a single word leaking out.
Where most deals involve squadrons of high-priced investment bankers and lawyers, in this case the Wall Street army was brought in at the very last minute--virtually to watch the papers get signed.
And where most such deals take months to consummate, this mega-marriage was essentially done in less than a week.
The key, according to participants and industry observers, was the chemistry between the two principals: Eisner and Murphy. The two chairmen are old acquaintances and their companies have a long relationship dating back to 1953, when ABC’s chairman, Leonard Goldenson, lent Walt Disney more than $10 million he needed to build Disneyland. (In return he extracted Disney’s promise to produce a one-hour television show for ABC every week.)
Over the years Disney, ABC, and Capital Cities--once a small owner of television stations and newspapers--have had many discussions about merging. In the mid-1980s Eisner, Disney General Counsel Sanford M. Litvack and ABC Chairman Leonard Goldenson tried to do a deal; instead, ABC was sold to Cap Cities. Three years ago, Eisner recalls, there were “serious discussions” involving him, Murphy and top executives from both sides in New York.
“We wanted to pay with stock and they wanted cash, or maybe it was the other way around,” Eisner says. “In any case, it didn’t work.”
The two sides tried again about six months ago. Then, again, “I wasn’t aggressive enough financially and Tom wasn’t aggressive enough either,” Eisner says.
But by this summer things had changed. Both companies had come through a bad patch financially, but their troubles seemed to be receding--Disneyland Paris appeared to be on the most solid financial footing since its opening, and the value of Cap Cities’ television holdings was once again being recognized by Wall Street.
“This time both companies have no operating problems,” Eisner says. “No divisions are in trouble, we’re both doing well, and it seemed like the right time.”
For all that, Eisner says doing a Cap Cities/ABC deal was far from his mind when he arrived at Sun Valley.
For one thing, he couldn’t forget his heart surgery.
“Given what happened last year, I was reluctant even to go,” he says. Trying to take things easy, he scheduled only a one-day visit to coincide with Disney’s Thursday-morning presentation to financial analysts.
Upon his arrival on Wednesday, July 12, he had convened his four-man brain trust for their regular five-year planning meeting. As the session started the Disney executives suggested: Isn’t it time to do a deal?
As Eisner recalls things, he had opened the meeting by noting that Disney had reached the midyear point with very little debt. Interest rates were so low that borrowing was once again attractive. Money was loose and the atmosphere for a strategic move could not be better.
“I was really getting quite compulsive about taking Disney into the next century and beyond,” Eisner said in an interview Monday with The Times.
In the executives’ hands was a list of five potential acquisition candidates, and at the top of that list: Capital Cities/ABC.
The next morning, after the Disney presentation, Eisner prepared to leave. He left his condo and walked up the street to say goodby to Allen, his host. There, in front of the Allen home, he saw Warren Buffett. (As Murphy recalls it, he was on his way, not to a picnic, but to play golf with the wife of Microsoft Chairman Bill Gates.) On the spot, Eisner, Buffett and Murphy opened negotiations.
Over the next week Eisner and Murphy tried hard to reach a deal. At first the talks bogged down on the question of whether Disney would pay cash or stock. On Friday, July 21, they met in New York, failed to come to terms, and separated. Eisner left to attend a wedding in Vermont, and then went on to Toronto to attend the opening of Disney’s stage version of “Beauty and the Beast.” That Tuesday, July 25, Murphy called again and left a message.
“I called him back from the Buffalo airport,” Eisner says. Murphy offered a final deal: If Disney would pay $65 in cash and one Disney share for each Cap Cities share, he said, “You’ve got a deal.”
The following day Eisner called Murphy from Disney headquarters. In the room with him were Litvack and Steve Bollenbach, Disney’s new chief financial officer; both had been part of the brainstorming session two weeks earlier in Idaho (along with Thomas Staggs, senior vice president of acquisitions, and Lawrence P. Murphy, executive vice president for strategic planning and development--and no relation to Thomas Murphy).
Cap Cities’ Murphy repeated the terms. “He said, in a nice way, ‘Take it or leave it.’ I stared at Sandy and Steve, and said, ‘You’ve got a deal.’ ”
From that point on things moved swiftly. On Saturday, Eisner flew to New York, stopping en route in Fort Worth, Tex., to pick up Sid Bass, a long-term adviser and the holder of 18% of Disney’s shares. Buffett and Murphy joined them at the offices of Dewey Ballantine, Disney’s New York law firm. Saturday and Sunday the four of them negotiated eight final points, concluding the deal in time for Disney to convene a 3 p.m. telephonic meeting of its board.
For three hours the board listened as Eisner and his lieutenants outlined the merger.
“As a board, we’re pretty informed people,” said Disney director Robert A.M. Stern, the prominent architect who designed the company’s distinctive animation building just north of the Ventura Freeway in Burbank. When the board was informed of the terms of the deal, there was no audible dissent, he said.
“We practically threw up our hands in hurrah.”
Caught by Surprise
At Cap Cities, the board began meeting at 5 p.m., then reconvened at 7 a.m. Monday morning for a final vote of approval. Thirty minutes later, a press release hit the wires announcing the stunning deal.
Around Hollywood the news hit like a bombshell. Many top executives had suspected Eisner was up to something, but none suspected a transaction of this magnitude.
Former Disney Studios Chairman Jeffrey Katzenberg apparently realized a deal of some sort was brewing when he spotted Eisner’s corporate jet at a New York airport over the weekend. But Katzenberg said Monday that he had absolutely no idea that the deal Eisner might be negotiating was one with ABC.
“Everything I speculated on was wrong,” he said. “This one wasn’t even on my radar screen.”
For all that, it was the timing rather than the partners that took Hollywood by surprise.
“This is something Michael has imagined, thought about, and strategized for 10 years,” said Katzenberg, an associate of Eisner’s for two decades until his acrimonious departure from Disney a year ago.
Meanwhile, Eisner and Murphy were setting forth on a round of press interviews, television appearances, and press conferences.
With the high spirits of schoolboys out on a lark they landed on the stage of ABC’s “Good Morning America,” where the flustered host, Charles Gibson, found himself confronted with the chore of interviewing both his current and his future boss.
“I never thought I’d work for a guy named Mickey,” Gibson said.
“So you don’t like the deal, do you, Charlie?” Eisner cracked, on the air.
Gibson replied, “Don’t you think this would be a good time for a commercial, everybody?”
Times staff writers Jane Hall in New York and Sallie Hofmeister and Chuck Philips in Los Angeles contributed to this story.