Investors See Reason to Keep Holding

Many Walt Disney Co. investors may be unhappy with management -- but not enough to sell their stock.

Disney shares edged up Thursday despite a dramatic vote of no confidence in Chief Executive Michael Eisner at the company’s annual shareholder meeting a day earlier and despite widespread anger at the Disney board’s response to that vote.

The stock added 15 cents to $26.80 on the New York Stock Exchange and during the session never traded below the previous day’s close. Trading volume was subdued.

Some Disney investors said the lack of action in the shares showed that the annual meeting changed little in the market’s view of Eisner, the board, the company -- or the reasons to hold on to the stock.

Those who oppose Eisner, such as Kristin Yates of money manager Holt-Smith & Yates in Madison, Wis., say they are angry that the board didn’t accept the vote as a sign to dump the longtime CEO. Forty-three percent of shares cast rebuffed Eisner in his board reelection bid.

But many in the anti-Eisner camp also say that selling the stock makes little sense, because they are convinced that Disney’s businesses are improving, which could bolster the price over time.

“They’re through the worst of it,” Yates said of the Burbank company’s struggles with its theme parks, the ABC network and other units. “To let the stock go now for a cheap price doesn’t seem a good idea.”

Others who voted against Eisner say they believe there’s a high probability that the board eventually will do more to address shareholders’ concerns, beyond the decision announced late Wednesday to split the chairman and CEO posts and name director George Mitchell to replace Eisner as chairman.

“As a shareholder you feel that there are a lot of other people who are upset and that the board is going to do something,” said one big investor who asked not to be named. He said it would have been irresponsible for the board to instantly dismiss Eisner on Wednesday.

Some investors who voted for Eisner said they believed that the chief opposition, led by former director Roy E. Disney, wasn’t offering a specific alternative plan for the company.

In that context, “all you’re voting for is to destabilize” the firm, said Peter Goldman, a portfolio manager at Chicago Asset Management in Chicago, which voted its 540,000 Disney shares to reelect Eisner.

But Goldman says he too believes that the board has no choice but to view the votes withheld from Eisner and Mitchell as a call for change at the top, and sooner rather than later.

“I think they’ve got to be looking at both the chairman and the CEO” for succession plans, Goldman said.

In the meantime, something else is underpinning Disney’s stock: last month’s unsolicited takeover bid by Comcast Corp.

The cable giant’s offer of 0.78 Comcast share for each Disney share is valued at about $50 billion. But Disney stock jumped well above the per-share value of the bid on the day it was made public and has remained there.

On Thursday, Comcast’s shares rose 31 cents to $30.71 on Nasdaq. That made the bid worth $23.95 a share to Disney owners -- 10.6% below Disney’s market price.

The Disney board quickly rejected Comcast’s overture last month, saying the market’s reaction showed that Comcast was undervaluing Disney.

Many investors agree.

“Looking at the assets, we think the value totals more than $27 a share,” said William Nygren, a partner at money management firm Harris Associates in Chicago and a Disney holder.

Comcast has said it will not increase its bid, but many on Wall Street see that as posturing -- and believe a higher offer may yet come. That too gives Disney investors an incentive to hold.

What if Comcast were to withdraw its offer? Some analysts who back Comcast believe that Disney stock would immediately slide, and stay down. Others aren’t so sure.

“The bid made people more aware of the underlying asset value of Disney,” Goldman said.