Disney Board Hits Back at Dissidents Directors Accuse Roy Disney And Gold of Distortions In Campaign Against Eisner



Walt Disney Co.'s board launched a counteroffensive against criticisms made by former board members Roy E. Disney and Stanley Gold, the latest sign that Disney is taking very seriously the dissident directors' campaign against Chairman and Chief Executive Michael Eisner.

Messrs. Disney and Gold quit Disney's board last year, calling on Mr. Eisner to resign and later asking shareholders to withhold support for him and three other directors at Disney's annual meeting March 3.

The company has said little publicly about the former directors' assertion that Mr. Eisner's two-decade run as Disney's leader should end.

But Monday, Disney's 13-member board fired back with its most detailed response to the dissidents yet. In a letter to shareholders, the board accused Messrs. Disney and Gold of waging a "misleading and distorted campaign" against the company and "putting their own interests ahead of yours." Messrs. Disney and Gold replied with a letter that said the board "continues to resist independent, thoughtful consideration of opinions raised in opposition to Michael Eisner."

While the rancorous Disney battle isn't a full-blown proxy fight -- Messrs. Disney and Gold haven't proposed an alternate slate of directors for shareholders to consider -- Disney is responding almost as if it were. Both sides have lobbied for support from institutional shareholders and corporate-governance advisers. Disney, based in Burbank, Calif., is holding an investment conference in Orlando, Fla., later this week, while Messrs. Disney and Gold are planning their own shareholder "forum," to be held the day before Disney's annual meeting in Philadelphia.

The board's letter details ways in which it believes that the company's financial performance and its corporate governance practices have improved recently. It then uses those improvements as the foundation for a broad attack on the credibility and motives of Mr. Disney -- the nephew of the late Walt Disney -- and his longtime business associate, Mr. Gold.

"You should be disturbed by this attack, which comes at a time when your company is achieving very positive results," the letter states. Shareholders, it adds, should "wonder how the best interests of shareholders are served by trying to distract the board and management at a time when all energy and resources should be devoted to forwarding the company's own momentum." The directors also allege that Messrs. Disney and Gold "fail to tell you they voted to approve, and in some cases championed, the very business decisions they now condemn."

The dissidents, in turn, maintained their critique of Disney's performance and disputed many of the claims in the Disney letter as misleading. They said, for example, that their votes for investments like Disney's often-criticized acquisition of Fox Family Worldwide Inc. "were based on projections provided by management to the board" which never were achieved. "We expected better of you," the dissidents' letter concludes.

Messrs. Disney and Gold have yet to demonstrate how much support they have among major Disney shareholders. Some have suggested that, while small individual shareholders may be moved by Mr. Disney's fight against the company that bears his family's name, institutional holders are likely to back Mr. Eisner because of the company's improving earnings and stock price. Indeed, Disney's fiscal first-quarter earnings, scheduled to be released Wednesday, are expected to be especially strong because of the DVD release of hit films like "Finding Nemo" and "Pirates of the Caribbean: The Curse of the Black Pearl."

Yet Disney can't ignore the threat the men represent. Mr. Eisner took a hit recently when Pixar Animation Studios abruptly said it would end its successful partnership with Disney, a move that seemed to exploit Mr. Eisner's current vulnerability.

And under a proposed rule being considered by the Securities and Exchange Commission, if 35% of shareholders withhold their votes for one or more directors, the company in the following year could be compelled to give major shareholders access to company proxy ballots. So if Messrs. Disney and Gold reach the 35% threshold, next year the company could be forced to include alternate board candidates on its proxy.

At the same time, Disney faces some near-term disadvantages in countering Messrs. Disney and Gold. The former directors are campaigning under the guise of an "exempt solicitation," which allows them to communicate with shareholders without having to incur the trouble or expense of filing a proxy statement. An exempt solicitation also requires somewhat less rigorous disclosure than would be required under a proxy solicitation, though Messrs. Disney and Gold have regularly filed their missives with the SEC.

The primary weapon the men have used so far is their Web site, Savedisney.com, where they post almost daily criticisms of Mr. Eisner's performance and the company's strategy. The men recently made their case against Mr. Eisner and three other directors in a letter sent to holders of 1,000 or more Disney shares. They also posted on the Web site an "open letter" to George Mitchell, the former U.S. senator who serves as Disney's presiding director; and they have arranged for travel discounts for shareholders wishing to attend the annual meeting.

Disney, meanwhile, will make its case to Wall Street at its analysts' meeting later this week. But it also appears to be trying to get its message across in more subtle ways: The company Monday placed unusual full-color newspaper ads -- pegged to no specific product -- which featured a giant Mickey Mouse and hailed Disney as "the world's leading family entertainment brand." A Disney spokesman called them "brand" ads.

In 4 p.m. composite trading Monday on the New York Stock Exchange, Disney was at $23.77, up 42 cents.

Write to Bruce Orwall at bruce.orwall@wsj.com

Updated February 10, 2004