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But on the other hand ...

But on the other hand ...

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Hey, gang!

Jim Hill here. Now, a lot of you may not know the name Jon Nadelberg. And there's a good reason for that. Jon keeps a relatively low profile on the web. Though some of you might know Nadelberg from having read some of his well reasoned, well written posts which you'll find on various Disney discussion boards.

But -- as it turns out -- JHM readers really owe a debt of gratitude to Jon Nadelberg. Why for? Because it was Jon -- along with my ex-wife, Michelle Smith (AKA the Fabulous Disney Babe) -- who actually got JimHillMedia.com up out of the ground back in August 2002. Without these two doing all the heavy lifting ... I'd probably still be wandering around the Web, still looking for a home.

Another reason that I'm grateful for Jon is that -- every so often -- he'll toss an e-mail my way. Which will sometimes bring clarity to a rather confusing issue.

Such is the case with the whole Roy Disney / Stanley Gold / Michael Eisner debacle. You see, Nadelberg has one of those rare minds. He can see both sides of an argument and argue passionately and intelligently for either side of the equation.

What follows is an excerpt from a recent e-mail where Jon explained to me why Roy Disney and Stanley Gold couldn't possibly succeed in their efforts to unseat Disney CEO Michael Eisner. You see ...


 

Two thirds of Disney is owned by financial institutions, and (Michael Eisner) does have a friendly board. It does not matter if (Roy) got every last individual shareholder to agree with him and vote his way. If he can't convince the banks that own the place otherwise, then (Disney) can't do anything. It doesn't matter if every employee in the company hates (Eisner's) guts. There are many CEOs out there who do not enjoy the love of their employees.

And the only thing that will convince (Wall Street and investment analysts) is profits, share price, and growth. They don't really care about chipped paint on a stairway, or that Disney said they were retiring the Electrical Parade and did not. In fact, when it was announced a while back that Disney was going to be throttling back investment in their theme parks, the response was very positive on Wall Street. Why? Because theme parks don't make as much money as other investments, and these guys just DON'T CARE about anything other than money. It's their job. They manage mutual funds and such and are responsible to do the best by their customers.

Since Disney is doing rather well right now in terms of growth and profit, then these folks are not going to be too interested in hearing about how Eisner should be replaced. But if those stock prices drop, and growth flutters, and profits evaporate, you'll see a change in their attitude. Money talks, and you know what walks.

I also find it somewhat disingenuous of Roy Disney to be suddenly taking this road. He has been unhappy for the last seven years, and yet was head of animation when Disney produced absolutely terrible features such as "Atlantis" or expensive bombs like "Treasure Planet." Where was his leadership then?

It seems to me that the only reason he resigned and is making all these comments is because he was thrown off the board. If his name was not removed from the slate of directors up for election, I don't think you'd be hearing a peep out of him.

So what does that say? I think it says that Roy Disney may be more interested in doing well by Roy Disney than by the corporation that bears his name. Maybe he is sincere, or feels he is. But given the timing and statements made, and to whom he is trying to appeal to, it doesn't look like it.

Lastly, the Howard Dean analogy (that you used in your article back on December 16th) is not quite correct. In a political campaign like Dean is running, you actually do have to appeal to people on an individual basis and get contributors. In Roy Disney's case, he has to make a case to a small group of people who control the lion's share of stock.

Everyone online may agree with the sentiments of Roy Disney, but unless he's got something else up his sleeve that we aren't seeing, he's not going to get anywhere with this.

 


And then -- just to demonstrate his mentality dexterity -- Jon switched positions. And -- in a later e-mail -- laid out a brilliant battle plan that Roy Disney and Stanley could actually use in their efforts to oust Eisner:


 

A lot of discussion about Roy Disney has gone on, but what is it all going to come to? Obviously, he wants to get rid of Eisner, but how can he do it?

Right now, all we are seeing is a public relations campaign. Is there something else behind the scenes? If so, what would that be?

Right now, 65% of the company is owned by financial institutions, and 35% is owned by individuals. With a public relations campaign (like the one that Roy Disney) is running now, it seems that he is trying his best to lock up as much of that 35% as possible. (Roy) won't get it all, as Eisner and his followers are not going to vote his way. But if he gets most of it, say 30%, then (Disney) would only need to get another 20% of the total amount of shares to go in on it with him to have a majority of votes.

To do that, (Roy) needs to get control of about one third of the shares owned by the financial institutions. (Disney) can do that in one of two ways: Either by convincing them that he is right, and so they vote his way, or (Roy) can purchase their shares and thus gain voting rights.

Convincing these folks that new management may be in order is going to be a rather tough row to hoe at the moment, for reasons discussed previously. But some may go along with it. It will likely not be enough, though.

So, given a company value of $50 billion, if (Disney) needs to control 20% of that or so, then he would need about $10 billion in either cash or financing at a minimum to purchase the stock. Given that a takeover like this generally raises the price of a stock, the amount of money needed would likely fall into the $15 billion range. That is still a fairly huge amount of money.

The question is, how to get that money, and how to minimize the amount of money necessary. Well, (Roy's) already going through phase one, which is to get the individual shareholders to want to oust Eisner. It's not going to be hard to do that, Eisner is not popular. The bankers are another story. I don't think many will go for change at this time.

So, it's the stock purchase route. But who has that kind of cash sitting around? Other than Bill Gates, not too many. But if you do get a small group of people who are at that level of wealth, you could possibly cobble together a purchasing group. Steve Jobs, a name that has been tossed around, could supply a good chunk, but he is only worth about $1.5 billion. Even if he uses his entire fortune, it's not going to cover it at all. Others will have to come in on the deal.

But does it need to cover it all? Not really. What doesn't get covered can be done via finance, such as bonds or company debt. If you can get half of the money up for purchasing, say $7 billion, then they'd only have to finance $7 billion (very loose numbers here) and that's been done a few times. The only problem with that would be the added debt to the corporation. That can be fixed up a bit by selling off parts of the company, such as ABC or the parks.

So it's possible, but how likely? Don't know. But it's possible.

 


It's not often that you get to see both sides of the coin (so to speak) in a single article. Your thoughts?

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