Disney Won’t Cut Option Price Without OK

From Bloomberg News

Walt Disney Co., whose shares have fallen 12% over the past year, said it won’t lower the price on any employee stock options without approval of shareholders.

Burbank-based Disney, the world’s No. 2 media company, is writing that vow into the bylaws of its stock-option plans, it said in a filing with the Securities and Exchange Commission on Thursday. The company’s filing is part of a proxy statement asking shareholders to approve a proposal to add 100 million shares to its employee option plan, and to extend the plan until 2011.

Some companies, responding to falling stock prices and fearing an exodus by employees, have drawn fire from investors for cutting the price that must be paid to exercise previously granted options, or by replacing unprofitable options with new, cheaper grants. Investor groups have been pushing companies to get shareholder approval before such moves.


“It probably means they’re having trouble rounding up votes” to pass the proposal adding shares to Disney’s option plan, Patrick McGurn of the Council of Institutional Investors said of Disney’s move today. His organization had recommended that mutual and pension funds vote against Disney’s options plan because it has allowed the company to reprice options without shareholder action.

Disney is acting “to confirm to our shareholders” that it won’t reprice or replace any existing options, company spokesman John Dreyer said today. It’s been the company’s “long-standing practice”--although not written policy--not to do so, he said, adding Disney hasn’t repriced any options in recent history.

“They know this is a big issue for shareholders,” said Nell Minow, editor of the Corporate Library, a Web site on corporate governance issues. In a falling stock market, investors “are concerned that they’re going to be feeling the pain while corporate managers will find a way to stay whole.”

“We do support in principal the concept of what Disney has done,” said spokesman Patrick Connor of TIAA-CREF, a teachers’ pension fund with $285 billion of assets at the end of last year, including 16.9 million Disney shares, according to an SEC filing. Connor said his organization hasn’t studied Disney’s proposal, though it has advocated that the SEC and the New York Stock Exchange make shareholder approval mandatory before repricings.

A recent change in accounting rules has made repricings less attractive because companies may have to take charges against earnings, Minow said.

“They’re doing the right thing,” she said of Disney. “I hope everybody follows suit.”

Dreyer, the Disney spokesman, said some employees may have received options when the stock price was higher, making their options worthless unless the shares rebound. He said there are no figures available on the number of workers or options in that position. Beginning last year, the company has adopted a program of making all its option grants in January of each year.


Chief Executive Michael Eisner in January 2000 received options to buy 2 million shares for $25.66 apiece, according to a recent Disney filing, giving the most recent available data of executive stock grants.

Disney shares rose $1.26 to $32.41 today.