How Eisner Might Keep His Kingdom

Walt Disney Co. Chairman Michael Eisner titled his 1998 autobiography “Work in Progress.”

The same can be said for his takeover-defense strategy.

With cable giant Comcast Corp. lurking with a $49-billion stock bid for the keys to the Magic Kingdom, Eisner has a short menu of options at his disposal that is constantly in flux.

One key reason: The heat that corporate directors have felt in the post-Enron era has made it harder for CEOs to make such important decisions in the freewheeling ways of the past. Disney directors in particular have been criticized for being too close to Eisner and are under pressure to demonstrate their independence.

The Burbank entertainment company won’t comment on how it will respond to Comcast’s unsolicited offer. Disney has said its directors would carefully review the proposal and respond in due course.

In the meantime, here are some options Eisner and the board could employ to fend off the unwanted guests, according to analysts, shareholders and senior media executives:

*

Just Say No

Eisner can choose to do nothing, but there’s a catch: He’s got to keep Disney’s stock price at the higher level at which it is now trading, the result of suddenly being put in play. A high stock price would make the company prohibitively expensive for Comcast.

Eisner is one of the media industry’s best salesmen, and talking up Disney’s stock, as he did this week before analysts and investors at Florida’s Walt Disney World, is something he does often.

But is that enough?

The risk for Disney is that the Philadelphia-based cable giant might raise its bid, or have something else up its sleeve that would be appealing to stockholders, such as adding cash.

Another risk of standing pat is that Eisner could end up alienating shareholders just before a referendum on his management at Disney’s annual meeting next month. Eisner critics Roy E. Disney and Stanley Gold, both former board members, are asking stockholders to refrain from voting for Eisner as a director, citing his inability to improve ABC as well as the decision by Pixar Animation Studios to leave the Disney fold.

Another risk would be that Disney’s stock could drop sharply if Comcast’s bid evaporates, leaving it vulnerable to shareholder lawsuits and even another takeover offer.

*

Play the Big-Media Card

Eisner and the board could also play up the nation’s current backlash against big media.

Federal Communications Commission Chairman Michael K. Powell already has indicated that a Comcast-Disney pairing would trigger close regulatory scrutiny. And public-interest groups are warning that a merger would lead to greater media power in the hands of fewer companies.

“Anyone who thinks there is not going to be a lot of regulatory heat on this issue is naive,” said David Miller, an analyst with Sanders Morris Harris in Los Angeles.

Efforts to relax media ownership rules created a political firestorm in Washington last year. The FCC’s move to ease ownership regulations are being challenged in court, and nearly all big media deals have been forced to undergo extensive review.

*

Scorch the Earth

Besides parachute pants and George Michael albums, another relic of the 1980s is the self-destructive defenses many companies employed to fend off corporate raiders such as T. Boone Pickens Jr.

In those days, companies would do just about anything to escape the clutches of takeover artists, including burdening themselves with debt, selling crown jewels or making unusual acquisitions.

That was one of the strategies Disney’s previous management employed when it was fighting the last coup at the company in 1984, just before Eisner took over. It bought a real estate concern and, at one point, planned on adding a greeting card company.

Disney has hired lawyer Martin Lipton, father of the “poison pill” defense employed in the 1980s. Under that strategy, a company makes an acquisition prohibitively expensive through such means as issuing stockholders expensive new securities if a suitor takes control.

But those kinds of tactics won’t fly at a time when directors and CEOs are under a microscope by investors and shareholder groups, especially at a company such as Disney, which has been publicly touting its corporate governance reforms.

“Scorched-earth tactics wouldn’t fly in the current economy nor in the current climate of corporate governance,” said senior research associate Paul Hodgson of Corporate Library, a website that specializes in corporate governance issues. “Boards today are much more attuned to the fact that if they take actions that are detrimental to their shareholders, then bad things will happen.”

*

Seek a Shotgun Wedding

For now, most “white knights,” or merger partners that could fend off Comcast, have chinks in their armor.

The idea would be to seek out a rival media or distribution company, such as EchoStar Communications Corp., to present an alternative merger to shareholders. But few other companies have Comcast’s financial means or appetite to take on such a massive deal, analysts say.

Time Warner Inc. has the heft, but the company is more interested in cable systems. It also has little money to spend and can’t issue the stock that would be used in any deal because of a Securities and Exchange Commission investigation now underway.

General Electric Co. is preoccupied with its purchase of Vivendi Universal, and other media companies such as News Corp. and Viacom Inc. would have a host of regulatory issues.

People close to mogul Barry Diller downplay his interest in hooking up with his longtime friend Eisner. Diller has said that he enjoys not having a boss these days and wants to focus on his Internet businesses.

*

Throw a Hail Mary

Selling sports network ESPN has been mentioned as a possible way to derail Comcast. But jettisoning Chris Berman and Dan Patrick would get rid of one of Disney’s most lucrative profit centers. It also would subject the company to criticism for selling one of its most valuable operations to preserve Eisner’s job.

Another bold bid at self-defense would be to spin off the company’s theme parks. But sacrificing Space Mountain would be criticized as sacrilegious and also present a complex financial structure that hasn’t worked out so well in the past, Euro Disney being one example.

A more realistic sale, some analysts say, would be to unload Disney’s radio stations. Analyst Miller said the proceeds could, in turn, be used to finance a dividend for shareholders.

*

Just Say Go

By all indications, Eisner wants to keep his job and at least finish his contract, which expires in 2006 when he turns 64. But he could always just push for a sale, say goodbye to the headaches and use his wealth for pet projects. (Forbes estimates Eisner’s worth at $630 million.)

“He’s a wealthy man, and he’s made a lot of money,” said Sidney J. Sheinberg, former president of entertainment conglomerate MCA. “As nice as it is to run these companies, I can tell you from personal experience there’s a lot to be said about not running them.”