Ovitz to Leave Disney After Rocky Year as President

The entertainment industry’s most scrutinized corporate marriage ended in divorce after a tumultuous year Thursday when Walt Disney Co. announced that Michael Ovitz will leave as its president next month, putting Michael Eisner alone again atop the world’s second-largest entertainment concern.

In a brief statement, Disney said Ovitz will leave “by mutual agreement” effective Jan. 31, and will consult for the company. In the statement, Ovitz acknowledged that “it is important to recognize when something is not working. I hope that my decision to leave will eliminate any unnecessary distraction for a great company.”

Acknowledging that the job didn’t work out marks a rare failure for a man once dubbed “the most powerful man in Hollywood,” and also for a company that is arguably the most successful in entertainment. For Eisner, 54, it represents a high-profile blunder that puts him flying solo at the top with no obvious successor.

Ovitz will depart with a generous severance deal, probably the best ever. Sources say he is getting about $50 million in cash to settle his contract--including a $10-million “termination payment” spelled out in his contract. He also will take 3 million shares of stock options that today are worth $40 million and could be worth more if Disney’s stock appreciates. That gives Ovitz at least $90 million, according to sources with knowledge of the deal.

“It’s a lot of money for what apparently was a mistake,” said executive compensation expert Graef Crystal, who helped design Ovitz’s contract for Disney.

Disney stock fell $1.875 to $70.25 on the New York Stock Exchange, although blue-chip stocks in general were down. Wall Street analysts and investors were unfazed.

“There’s been speculation from Day 1, so no one is really surprised,” said Jessica Reif, an analyst with Merrill Lynch & Co. She said the main concerns of investors are “what it’s going to cost Disney” and “you go back to the succession issue” for Eisner.

A major Disney investor, noting that the company is highly profitable, said: “I know this is a great media event, but to Disney it means almost nothing. I don’t think the company’s going to miss a beat.” He added that entertainment executives are “deified more than they should be when the truth is one management guy doesn’t make that much difference.”

Ovitz, who turns 50 on Saturday, leaves with no job lined up, and is said to be planning to take several weeks off to vacation with his family and consider his options.

He spurned overtures this year to run the entertainment operations of Sony Corp., where executives are said to remain interested in hiring him. He has been telling people, however, that he is loathe to take another high-profile corporate job in the wake of the Disney experience, and would prefer to invest in a company where he can work for himself.

Ovitz’s tenure had been under the public microscope since the day he walked in the front door of the Burbank entertainment giant last year, lured from his perch as Hollywood’s top talent agent by Disney Chief Executive Eisner to help run Disney. As head of Creative Artists Agency, Ovitz broadened the traditional role of the agent into such areas as advertising and investment banking.

Ovitz found the Disney job a sobering series of frustrations, which led to increasing friction between the two men who describe themselves as best friends.

Ovitz was frustrated by his poorly defined role, Eisner’s reluctance to share power and repeated clashes with other senior Disney executives--notably Senior Executive Vice President Sandy Litvack and former Chief Financial Officer Stephen Bollenbach, who left the company to run Hilton Hotels. Ovitz in particular was frustrated by the lack of authority in dealing with Disney’s powerful division chiefs, who became used to widespread autonomy during the period after former Disney President Frank Wells’ death and during Eisner’s recovery from heart problems in 1994.

Likewise, Eisner has been clearly frustrated that his high-profile hire didn’t work out. He is known to have been irked when Ovitz offended some longtime Disney executives with a management style that some viewed as arrogant, and also by some high-profile missteps, such as a nasty feud with NBC triggered when he lured top programming ace Jamie Tarses from that network to ABC.

“I think it’s apparent Mike’s personality traits caused all this and made him more of a liability than an asset. He stepped on a lot of toes. . . . He really self-destructed,” said one investor.

Some of Hollywood’s most powerful figures, still smarting from clashes with Ovitz when he operated more ruthlessly as an agent, gloated privately at the beating Ovitz’s image took and his troubles with Eisner.

As the tensions played out in a series of embarrassing articles over the past three months, it became clear that a split was inevitable. Finally, in a four-hour meeting in Eisner’s New York apartment that ended at 2:30 a.m. Thursday, the two men agreed that Disney would announce Ovitz’s leaving.

For Disney, Ovitz’s departure leaves the company without an heir apparent to Eisner, who in 1994 lost longtime corporate partner Wells in a Nevada helicopter crash. Disney said it has no plans to name a successor to Ovitz, adding that “it will continue to operate organizationally as it did prior to his arrival.”

Most speculation centered on whether ABC chief Robert Iger would be moved into the job, although others dismissed it. They added that any executive will think twice about taking the job because the hands-on Eisner is considered difficult to work under.

Two years ago, Eisner underwent quadruple bypass surgery amid questions about his health. Ovitz theoretically was hired by Eisner last year to shoulder much of the burden of running the $21-billion-a-year company.

Ovitz’s hiring, announced in August 1995, shook up the entertainment business. Ovitz had just come off aborted discussions with Seagram Co. to run its MCA unit, which were said to be derailed in part because Eisner was simultaneously lobbying Ovitz to join him at Disney. Eventually, Disney bought ABC, and Eisner convinced Ovitz to join Disney.

But Ovitz was frustrated at nearly ever turn. He tried unsuccessfully to settle a lawsuit filed by former Disney film chief Jeffrey Katzenberg, who is seeking more than $250 million he says he’s owed, going so far as to rendezvous with Katzenberg in a hospital waiting room so the two wouldn’t be seen together. Ovitz’s luring of Tarses to ABC blew up into a public embarrassment, with NBC West Coast chief Don Ohlmeyer calling Ovitz “the antichrist” in a Time magazine interview. Ovitz was put in charge of developing Disney’s international business, such as in China, but ran into such problems as China’s unhappiness that the company is releasing a film about the Dalai Lama, Tibet’s spiritual leader.

One turning point for Ovitz took place last summer when he gave a pep talk about teamwork to Disney executives during a retreat in Aspen, only to find an account of his talk in the next day’s New York Post. Exasperated, Ovitz began voicing his frustrations privately. By September, Ovitz and Eisner were discussing his leaving.

Although most of Ovitz’s frustrations were in the job, he and his family are known to have been unnerved by the increasing stream of press reports that his position was shaky. Exceptionally guarded about his private life, Ovitz was especially upset by a mention in the New York Observer of a story involving his 9-year-old son.

Ovitz went from being visible throughout the Team Disney building to almost invisible, which one executive described as a “gradual erosion” of his presence.

“He’s had a much lower profile recently. He’s not around, and is not in the meetings he once attended,” said the executive.

Within the past month, Ovitz began laying the groundwork for his leaving. According to sources, Eisner and his wife, Jane, discussed the situation with Ovitz and his wife, Judy, last Saturday night while sitting at the same table at the wedding reception of Marvin Davis’ daughter at the billionaire’s Beverly Hills home.

By the end of the evening, sources said, it was clear that Ovitz’s departure had to be resolved soon, although Ovitz and Eisner still held out hope that the formal announcement could wait until after the holidays.

That changed this week during a previously scheduled business trip by Ovitz to New York, which touched off another media frenzy about his future and more rumors that he was headed to run Sony Corp.’s entertainment operations. Fearing that daily press reports would result in a “water torture,” as one person close to him put it, the decision was made to act now.

Despite the tensions, Ovitz was visible publicly in New York, escorting director Penny Marshall to the premiere of her new Disney film, speaking to the Council on Foreign Relations and meeting with Viacom executives about the possible purchase by Disney of the company’s radio operations.

Ovitz dined Wednesday night with Nynex Chairman Ivan Seidenberg, then had the late-night meeting with Eisner, who flew into New York shortly before 11 p.m. to attend a luncheon the next day honoring ABC News President Roone Arledge, which Ovitz was to co-chair with Henry Kissinger.

Sources say Ovitz told Eisner that it would be awkward for the two to attend the lunch amid all of the press about the tensions. Both executives had already agreed to the terms of his leaving, and Ovitz’s longtime lawyer, Ron Olson, was consulted by phone. In the end, a carefully worded statement was crafted that Ovitz “will leave the company by mutual agreement,” which sources said was worked out “for economic reasons.” Had he “resigned,” he would forfeit pay and stock.

Despite the breach, sources close to the two men maintain that they can remain friends and are even planning to spend time together over the holidays.

In a statement, Eisner said: “We have been doing business together while being friends for many years and I know that both our personal and professional relationships will continue.”

Times staff writer Brian Lowry contributed to this story.

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Disney Divorce

Creative Artists Agency founder Michael Ovitz, one of Hollywood’s best-known figures, resigned Thursday as president of the Walt Disney Co.

WHY IT DIDN’T WORK

Critics say Ovitz’s skills as an agent never translated to the duties of a corporate executive. Others say Disney Chairman Michael Eisner was unwilling to carve out clear turf for Ovitz.

THE CONTRACT SETTLEMENT

Sources say Ovitz will walk away from his 14 months at Disney with a severance valued at $90 million.

WHAT NEXT

Some believe he may be a candidate to run Sony’s entertainment operations or will set up a new business venture. But other entertainment industry executives believe Ovitz is unlikely to return as head of a large entertainment company--unless he owns it.

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Ovitz Fact Sheet

* Age: 49

* Education: Graduated from UCLA with a bachelor of arts degree.

* Accomplishments: At the helm of Creative Artists Agency, the talent agency he founded in 1975, Ovitz created the package eal, in which one agency represents a project’s screenwriter, director and top actors. He brokered the $5.7-billion sale of MCA to Seagram, orchestrated the sale of Columbia to TriStar and Sony, and brought regional telephone companies into the television business.

* Family: Married to Judy Reich for 26 years; three children