Wednesday, March 3, 2004

PHILADELPHIA — The Walt Disney Co.’s board voted last night to split the roles of chairman and chief executive officer — just hours after shareholders delivered a staggering rebuke by withholding 43 percent of their votes for CEO Michael Eisner’s re-election to the board.

Disney directors voted unanimously to make board member George Mitchell the company’s new chairman and voiced their approval of Mr. Eisner’s management and the company’s strategy. He will remain chief executive officer.

The board also rejected a renewed overture from cable television giant Comcast Corp., saying it would serve no purpose to reconsider an offer already dismissed as too low.

Mr. Mitchell, a former U.S. senator from Maine, may also prove to be a controversial choice. Shareholders withheld 24 percent of their votes from his re-election yesterday — the second-highest total after Mr. Eisner. Mr. Mitchell has been criticized as being too close to Mr. Eisner and not independent enough because his law firm had worked for Disney in the past.

The board met after a raucous annual meeting here that was attended by some 3,000 shareholders, many of whom blame Mr. Eisner for Disney’s lackluster performance on Wall Street.

The shareholders cast slightly more than 1 billion votes in favor of re-electing Mr. Eisner, who ran unopposed. About 771.1 million votes of eligible votes were withheld.

The vote emboldened an investor revolt orchestrated by Roy E. Disney and Stanley Gold, two former board members who once championed Mr. Eisner but have become his loudest critics in recent months.

“The shareholders have spoken clearly: Michael Eisner must leave now,” Mr. Gold said during a speech to the investors before the votes were tallied.

Mr. Disney also spoke before the votes were counted. Like Mr. Gold, he accused Mr. Eisner of mismanaging the company, whose shares trade at the same price they sold for in April 1997. The Burbank, Calif., company’s stock has risen 57 percent in the past year.

Disney’s stock sold for $26.65 when trading on the New York Stock Exchange ended yesterday, an 11 cent drop from the previous day’s close.

The shareholders cheered Mr. Gold and Mr. Disney during their speeches, a sharp contrast to the tepid applause they gave Mr. Eisner, the executive who has led the world’s second-largest media conglomerate for 20 years.

“I love this company. The board loves this company and we are all passionate about the output from this company. … Your company has the management skills to continue its growth path,” Mr. Eisner told his audience at the Pennsylvania Convention Center.

Mr. Gold and Mr. Disney quit the board in November and began waging their campaign to oust Mr. Eisner, saying he was ineffective and the board was too timid to stand up to him.

Mr. Disney — founder Walt Disney’s nephew — used a similar strategy in the past. In 1984, he quit the board and led a shareholder revolt that forced out Walt Disney’s son-in-law, Ron Miller, as chief executive. Roy Disney then returned to the board and, with Mr. Gold’s help, recruited Mr. Eisner.

Cable TV operator Comcast Corp. made an unsolicited $54.1 billion offer for Disney on Feb. 11, but the board rejected it five days later, issuing a statement that said it had faith in the “business, financial and creative direction” of Disney under Mr. Eisner’s leadership.

Comcast’s chief executive officer, Brian Roberts, said yesterday he had no plans to sweeten the bid, according to a spokesman.

“Today’s unprecedented withhold vote by Disney’s shareholders sends a powerful message that Disney’s board and management need to focus more on shareholder interests. Disney’s independent directors should immediately meet with Comcast so we can directly present our full and generous proposal and the benefits of the merger,” said Comcast spokeswoman D’Arcy Rudnay in a statement.

In an ironic twist, the meeting was held in Philadelphia, Comcast’s home. The venue was selected long ago by Disney, which moves its annual meeting around the country.

The California Public Employees’ Retirement System yesterday called on Mr. Eisner to resign both his chairman and chief executive officer positions by the end of the year. Calpers, the nation’s largest public-pension fund, joined nine states’ pension funds in withholding votes for Mr. Eisner.

Mr. Gold had predicted that about 30 percent of shareholders would withhold their votes, which he said would have been “an unprecedented no-confidence vote in the annals of business.”

Former Time Warner Inc. Chairman Stephen Case relinquished his title after 22 percent of that company’s shareholders in May withheld votes on his re-election to the board.

The daylong meeting was lavishly staged, complete with 75 6-foot statues of Mickey Mouse that lined the convention center’s grand hall and several costumed Disney characters, including Snow White and Cinderella. It also was packed with theatrics worthy of a Disney movie, particularly when Mr. Gold and Mr. Disney spoke.

The board gave Mr. Disney and Mr. Gold 15 minutes each to speak to the shareholders yesterday. Each man delivered their harsh assessment of Mr. Eisner’s performance as he stood silently at a podium on the other side of the darkened ballroom.

Mr. Gold said the board has continued to reward Mr. Eisner even though he has repeatedly failed to fulfill promises to improve its key businesses, such as its ABC television network, which has fallen in the ratings and now ranks fourth in prime time behind NBC, CBS and Fox.

He also failed to successfully renegotiate the company’s contract with the Pixar animation studio, which produced the successful “Toy Story” and “Finding Nemo” films for Disney.

“While we the shareholders have watched the value of our equity decline, Michael Eisner has never had a bad year,” Mr. Gold said.

Mr. Eisner defended himself after Mr. Gold and Mr. Disney spoke. “The conclusions you just heard were fundamentally wrong. We are a very well-managed company with strong corporate governance,” he said.

• This article was based in part on wire service reports.

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