The Walt Disney Co.’s plan to induce 4,000 of its 120,000 full-time staffers to leave the company voluntarily got better reviews on Wall Street last week than it did from “cast members,” as the employees were called in a memo signed by bad-news bearers Michael Eisner, chairman and CEO, and Robert Iger, president and chief operating officer.
At the end of last week, insiders were anticipating that employees would be offered incentive packages that start with a week’s pay per year of employment plus a month’s salary below manager level and range up to one week per year plus eight weeks’ pay.
Since finding comparable jobs is tough because many companies are in a cutback or hiring-freeze mode, most workers may reject the packages. (Because of collective bargaining agreements, guild and union members will be dealt with separately.)
After the three-week buyout phase-during which managers can veto employees’ requests to leave-“mandatory work force reductions with lower severance benefits will be required,” said the Disney memo.
Early reports had the company looking to make the deepest cuts, more than 1,200 positions, in the theme parks, which is Disney’s largest work force.
Speculation that ABC might lose as many as 400 positions was dismissed as “unfair” or “too high,” but every Disney division is expected to be affected by the efforts to reduce the overall work force by 3 percent by July, thus saving $350 million to $400 million a year for Disney.
The downsizing was characterized by Merrill Lynch analyst Jessica Reif Cohen as “a positive move.”
In a report to clients, she said, “In total, Disney is on track to eliminate a total of $500 million to $850 million of its annual cost structure by fiscal year 2003.”
Ms. Reif Cohen said she is maintaining her intermediate-term neutral rating on Disney, while other analysts at SG Cowen, UBS Warburg and ABN AMRO reiterated their “buy” ratings on Disney stock, which has been trading at about $29 a share.
However, UBS Warburg and Goldman Sachs reduced their 2001 and 2002 earnings estimates for Disney. Analysts say the cuts were necessary for Disney, which is burdened with a lot of fixed costs, to maintain its earnings growth projections in a slowing economic environment.
Disney is maintaining its forecast for 13 percent to 15 percent long-term earnings-growth targets.