Major players, moments of truth

Sep 30, 2002  •  Post A Comment

The behind-the-scenes unraveling at The Walt Disney. Co., AOL Time Warner and Vivendi Universal has become so acute that the companies are failing miserably at hiding or smoothing over some hard but telling truths.
First case in point: Disney last week tried to put an anticlimactic stopper on frenzied speculation about the pending upheaval of its longtime Chairman Michael Eisner. The company made a sanguine acknowledgement following its much anticipated Sept. 24 board meeting that dissident board member Stanley Gold will head a committee to downsize and better balance its board by year-end. Though Mr. Eisner has fallen out of favor with many board members, the group did endorse his three-year strategic plan for the company, which essentially calls for the status quo mining of core businesses in a difficult economic and competitive environment. Much of it is pinned on ABC’s producing more successful programs-a long shot for any network.
What the company didn’t comment on is that intensified board debate over Mr. Eisner’s stubborn resistance to a succession plan has cost Disney its best and only internal candidate for the top job. Sources said it was no coincidence that two days after the board meeting, Paul Pressler, a 15-year Disney veteran who headed its stores and more recently was chairman of its theme parks, abruptly resigned to become CEO of The Gap.
Hero or scapegoat?
Sources said Disney could have avoided losing yet another qualified candidate to eventually succeed Mr. Eisner, 60, if he and the board had moved to broaden Mr. Pressler’s corporate duties. There was, however, disagreement on how to do that without upsetting the existing hierarchy, in which President Bob Iger is widely shouldering the responsibility for reversing ABC’s ratings fortunes. If successful, Mr. Iger will be a hero who stays onboard, although he is not widely viewed by the board as a succession candidate, sources said. If he fails, Mr. Iger could become a scapegoat for Disney’s foibles the first half of next year.
Disney now is forced to look outside for succession candidates, who could include Pixar Chairman and Disney partner Steve Jobs and former Disney executive Steve Burke, now Comcast cable president. Sources said that while Mr. Burke wants to see through the Comcast-AT&T merger, which closes in November, that process would be far enough along a year from now when he will be in the last year of his three-year Comcast contract. Mr. Burke and Mr. Jobs declined comment.
Despite wild speculation that Viacom President Mel Karmazin could jump ship to join Disney, sources close to Mr. Karmazin said that is not likely. Mr. Karmazin declines comment. In fact, despite their ongoing differences, Mr. Karmazin and Viacom Chairman and CEO Sumner Redstone are moving closer to a renewal of his contract-including compromises on both sides-that could be announced before year-end. Mr. Karmazin’s willingness to remain at Viacom would require a succession plan by Mr. Redstone, sources said.
So it won’t be easy replacing Mr. Eisner and devising the succession plans being demanded by Disney’s board. “The current [Disney] management team is making the best of a difficult operating environment, and there is little that a new management team can do to alter the current strategy,” said UBS Warburg analyst Chris Dixon.
But Disney is not the only media giant to attempt to put a favorable spin on internal turmoil and board deliberations.
Case review
Second case in point: In a move to diffuse rampant speculation about Steve Case’s imminent resignation, AOL Time Warner officials confidently crowed that the firestorm over the chairman’s stormy tenure never even came up for discussion in the company’s recent board meeting.
But sources said that Mr. Case’s fall from grace was, in fact, discussed at an informal board dinner the night before the board’s monthly meeting. It was then determined that the opposition lacked the required number of board votes to oust Mr. Case and that it was better if the beleaguered company did not appear to be taking such dramatic action under pressure from shareholders and press.
Mr. Case is likely to quietly resign within the next six months, creating new leadership issues but not changing the company’s financial outlook.
That is why CEO Richard Parsons is rigorously pursuing partnerships, asset sales and other moves to maximize profits and minimize losses, some of which he did present to the company’s board. AOL Time Warner board’s initial deliberations of a potential merger of its CNN news operations with Disney’s ABC News is only one of many such joint ventures being discussed. Sources said AOL Time Warner and General Electric Co.’s NBC have talked about aligning their entertainment interests.
But AOL Time Warner’s biggest damage-control challenges may lie ahead: the potential criminal indictments of former America Online executives that result from ongoing regulatory probes of its accounting practices and the possibility the company will fall short of its downwardly adjusted 2002 financial targets. Either or both developments would exacerbate the company’s already serious credibility problems. Asked about board discussions or executive comment about either possibility, the company flatly declined comment.
The third case in point comes from Vivendi Universal, which is in the same boat as Disney and AOL Time Warner in that it is swimming upstream against a strong current of questions and hard truths about its assets, management and finances.
Outlining plans to sell $12 billion in assets over 18 months to reduce its nearly $17 billion debt, Vivendi CEO Jean-Rene Fourtou was less than forthright about why he considers its U.S. entertainment assets “critical” to his company’s future, in remarks made after a much anticipated Sept. 25 board meeting in Paris.
What he did not say is that the company faces tax liabilities through 2005 if Vivendi flips the Universal studios, theme parks and music assets in the next two years. Mr. Fourtou offered no insights into the contractual rights Barry Diller negotiated for himself when he sold his USA Networks cable assets to Vivendi earlier this year and became chairman of the Vivendi Universal Entertainment group. It appears Mr. Diller has the legal right to shape the future sale, spinoff or expansion of Vivendi Universal Entertainment for as many as 15 years, making him the final word on how and when a deal takes place.
There’s little wonder then why Richard Billotti, an analyst at Morgan Stanley Dean Witter, said Vivendi’s restructuring strategy is “borne of need rather than vision.”
So it is no surprise when Mr. Fourtou says he has been talking to Mr. Diller and his key ally John Malone, also one of Vivendi’s largest shareholders, about creating a stand-alone entertainment powerhouse by combining Vivendi Universal Entertainment (valued at about $13 billion) with Mr. Malone’s Starz! Encore and Discovery Communications and possibly involving General Electric’s NBC.
Sources said Mr. Diller is so eager for a mega-media deal he may be willing to renegotiate the terms of his USA Networks sale pact and leverage his 1.5 percent of Vivendi and his USA Interactive’s 5.4 percent stake in the company, since he nearly struck a merger deal with NBC two years ago. NBC has confirmed to me it is conducting its own talks with Vivendi about acquiring specific Vivendi Universal Entertainment assets such as the cable program services.
Rupert Murdoch’s News Corp., in which Mr. Malone has a 20 percent ownership stake, also is eyeing a possible bid for Universal Studios or the cable program services, sources said.
In his recent dealings with News Corp., Mr. Fourtou got his first harsh reminder of how tough it will be negotiating deals with U.S. media moguls. Mr. Fourtou announced the $900 million-plus sale of Vivendi’s struggling Telepiu Italian pay-TV unit to News Corp. as part of its massive restructuring. News Corp. then issued a prepared statement declaring, “No definitive agreement has yet been signed.” It was more of the hardball negotiations t
hat eventually will lead to News Corp.’s paying only about one-third of Vivendi’s original $2 billion-plus asking price.
So much for “full disclosure.”