In response to yesterday’s “This isn’t a sprint anymore. This is a marathon” article, I had one Wall Street insider write to me yesterday and say:
“Thank you for seeing the forest for the trees here, Jim. You alone among all the other Disney webmasters seem to understand how truly complex this whole situation is.
I mean, all that these other websites ever seem to talk about is ‘Eisner, Eisner, Eisner.’ Don’t those other webmasters realize that Roy and Stanley are actually after bigger game here? That Shamrock isn’t just out to oust Disney’s CEO. They also want to clean house with Disney’s Board of Directors as well. Get some people in there who are truly sympathetic to Roy and Stanley’s cause.
Which ISN’T just to “Save Disney.’ Restore the Walt Disney Company’s good name. Disney and Gold also have another, unstated goal. Which is to shore up the value of Disney stock. Which would then firm up Shamrock’s financial future.”
Yeah, I have to admit that I too have been kind of puzzled at how even the mainstream press has been narrowly focusing in Eisner. All the time ignoring how Roy and Stanley have also been calling for shareholders to withhold their proxy votes for three other Disney board members: John Bryson, Judith Estrin and George Mitchell.
Of course, back in 1988, Disney and Gold learned the hard way that it’s damned near impossible to take over a company when you don’t already have the board of directors on your side. Yeah, the wounds of that whole Polaroid debacle still burn deep.
What’s that? You say that you don’t know anything about Shamrock Holdings’ hostile takeover attempt of the Polaroid Corporation back in the late 1980s? But that’s the whole key to understanding the careful, measured approach that Roy and Stanley have taken in their recent effort to oust Eisner.
Here. Let me give you the quick “Reader’s Digest” version of the whole unfortunate Polaroid / Shamrock episode: Now — in order to understand this story — you have to look past Roy Disney’s kind, grandfatherly-looking face and understand that (in corporate circles, anyway) Shamrock has this reputation for being sharp. Smart. A company that sees business opportunities where others do not.
Such was the case in the late 1980s, when Shamrock thought that the Polaroid Corporation was particularly ripe for the plucking. Best known for its instant film and camera business, this Cambridge, MA-based company hadn’t been all that profitable during the latter half of that decade. But — given that Polaroid was then carrying a relatively low debt load — this made Polaroid seem like a company that could really benefit from a management change. In short, a perfect takeover target.
Which is why Roy and Stanley’s staff decided to make its move in the Spring of 1988, when Shamrock bought roughly 5% of Polaroid Corp.’s stock. Then — starting on June 16th — Disney and Gold tried to get ahold of Polaroid CEO I. MacAllister Booth. Supposedly because Shamrock was looking to “… establish the ground work for a good relationship with (Polaroid).”
But Booth was no dummy. He knew what the Shamrock executives were up. So he kept stalling and stalling Disney and Gold. Until finally I. MacAllister agreed to meet with Roy and Stanley on July 13th.
The folks at Shamrock supposedly thought that they had Polaroid over a barrel. But then Booth pulled a fast one. On July 12th, one day before I. MacAllister was supposed to meet with Roy and Stanley, he convened a special meeting of Polaroid’s board of directors.
“What was the purpose of this meeting?” you ask. To supposedly approve a “comprehensive plan” for the reorganization and redirection of the Polaroid Corporation. But the real purpose of this last minute gathering was to find an effective way to fend off Shamrock’s advances.
What Booth and the board came up with was a proposal for an Employee Stock Ownership Plan (ESOP) that would account for 14% of Polaroid’s total shares. Shares that would be under the direct control of the company’s current management.
“So what’s so significant about that?” you query. Well, under Delaware law, any corporation attempting a hostile takeover of another firm has to gain control of 85% of the target company’s shares within three years in order to consummate that merger. Otherwise, the deal was off.
And — given that Polaroid’s management team had just created a huge new block of stock that only they controlled — it now seemed extremely unlikely that Shamrock would ever be able to get their hands on the number of shares necessary in order to succeed with their takeover attempt.
As you might expect, Disney and Gold were absolutely furious when they learned of Booth’s last-minute maneuver. Which is why Shamrock Holdings sued the Polaroid Corporation. Taking the camera company to court to see if they could get the ESOP declared invalid. Unfortunately, the judge in Delaware ruled in Polaroid’s favor. Shamrock then appealed … Only to have the Delaware Supreme Court uphold the earlier decision.
In the end, Shamrock eventually agreed to abandon its quest to take over Polaroid in early 1989. As part of the final settlement between the two firms, the Cambridge, MA-based camera company agreed to pay Roy and Stanley $20 million (reportedly to cover the costs that Shamrock had run up during its nearly year-long attempt to acquire Polaroid) as well as purchase $5 million’s worth of commercial time on Shamrock’s radio and television stations. In return for this payment, Shamrock officials then had to agreed not to try and take over Polaroid Corp. ’til at least March of 1999.
To hear Shamrock officials tell this story, they still managed to come out ahead in the end. “We actually made money off of that deal,” said one senior staffer I spoke with yesterday as he referred to the $25 million that the Cambridge-based corporation coughed up. But as for Polaroid … It quite never got out from under that crushing load of debt that the camera company eventually took on in order to finally scare Shamrock away. The end result was that Polaroid wound up declaring bankruptcy back in October of 2001.
“Which could have been avoided,” continued the Shamrock official that I talked to yesterday. “We had a plan that could have made Polaroid extremely profitable.”
Sadly, Shamrock never got to put that plan into action. But what Roy and Stanley’s people did get to do was put together an after-actions report. Where they supposedly closely examined what had gone wrong with the Polaroid acquisition deal.
The way I hear it, the chief lesson learned was: In order to successfully make a management change-out, the board of directors HAS TO be on your side. Otherwise, no matter how many shares you control or how many shareholders you have on your side, the deal can still go south.
So don’t look toward next week’s events in Philadelphia and think: “This is when Eisner gets the boot. This is when everything changes for the Walt Disney Company.” Sure — what with the California State Teachers Retirement System, the New York State Common Retirement Fund, the New Jersey Division of Investment, the Massachusetts Pension Reserves Investment Management Board and the Virginia Retirement System all getting on with the “Oust Eisner” crusade yesterday — things are looking pretty grim for Disney’s CEO right about now. The momentum’s really running against Michael right now.
But please keep in mind that Roy and Stanley are playing for bigger stakes here. They don’t just want to get rod of Eisner. They also allegedly want to remake Disney’s board in their own image. To reportedly get rid of those directors who were previously unsympathetic to their earlier pleas. As well as bring in new people who will hopefully help Disney and Gold get the Mouse’s house in order. Bring back quality to the Walt Disney Company. But — most important of all — shore up the value of Disney shares and restore Mickey to maximum profitability.
To accomplish all that … Disney’s board of directors really has to be on board with what Roy and Stanley want to do. Which is a lesson that these two learned from their somewhat painful dealings with the Polaroid Corporation.
There’s an old saying:
Those who don’t learn from the past are condemned to repeat it.
This is an axiom that Disney and Gold clearly take to heart. These two are supposedly determined to not ever repeat any mistakes that they’d made in the past. Which is why — even though the media may be focused on Michael Eisner — Roy and Stanley are keep a keen eye on Disney’s board of directors.
“Forest for the trees,” folks. “Forest for the trees.”
Your thoughts?