Merry Christmas, all!
As I have noted previously, I write these sections months ahead of time, so it's just dumb luck that the end of the Proxy War subplot fell on Christmas Weekend. Enjoy the serendipity.
Chapter 9: The Aftermath
From Dis-War Two: The Great Disney Proxy Culture War of 1998, by Taylor Johnson
As September of 1998 came to a close, the vast majority of the Good Shepherd Group’s investors had bailed out and were struggling to deal with their losses. Peltz himself had sold off much of his stake in order to limit his losses, though he maintained a small stake and retained interested in improving Disney’s internal performance.
Many suffered immediate fallout. Jerry Falwell would be forced to step down by the board of trustees for Liberty University in favor of Elmer Towns, citing Falwell’s “vain pursuit of Caesar’s Politics and Hollywood glory” over “service to the Lord”. Pat Robertson would face a massive backlash following a
60 Minutes expose into his conduct during the Disney takeover attempt, with many of his supporters enraged at the squandering of their donations, which they intended for “God’s work” such as missionary work and charity rather than activist investments or private jet flights to Orlando. He would enter into an early retirement, using his remaining money to battle an inquisitive IRS.
Turner, meanwhile, “magnanimously” absorbed many assets from the struggling Shepherds in exchange for taking on debt or shoring them up against margin calls. He grabbed the CBN Network from Robertson and sold it to the E.W. Scripps Company and he absorbed the Sinclair Broadcast Group in its entirety, along with its mountains of debt, promptly claiming any CBS stations they owned and selling off any non-CBS stations to Time-Atlantic or E. W. Scripps to pay down the assumed debts. In the process he reduced SBG head David Smith to a minor Regional VP in the CBS Television group.
Ted Turner, clearly at conflict between NBC and CBS, made a deal to trade his substantial stock to Disney in exchange for their share of the pre-1984 MGM Classics, some of their cable channels such as the A&E block and some NBC subsidiaries, the absorption of some of his debt by Disney, and an undisclosed amount of cash. All said, Turner’s full acquisitions between SBG and other former Shepherds and Disney were valued at over $3.2 billion, a significant profit compared to his initial roughly $2.5 billion investment acquiring his 5.2% stake. The stake was divided proportionately between the Disney shareholders, ironically including the rump Shepherds, and a New Normal was achieved.
The remaining Rump Good Shepherd Group, now called “the Good Shepherd Shareholder’s Alliance”, still commanded an impossible to ignore 3.7% stake. Nelson Peltz himself took their seat on the board, working with Disney to find efficiencies and improve processes that helped improve Disney financially without abandoning the “Dream”, which even Peltz by this point realized was an unshakable part of the company culture.
Meanwhile, the “mystery buyers” revealed themselves when activist investors Bill Ackman and David P. Berkowitz of Gotham Partners filed a Schedule 13D as the heads of a politically progressive activist shareholder’s block named Liberty Holdings, ultimately acquiring a 3% stake. Their stated goal was to “counter” the influence of the Shepherds and “protect free speech”. Bill Ackman soon joined the Disney board, where he and Steve Jobs found that they were of a like mind on many things. Ironically, Ackman and Peltz soon found that they were of a similar mind on many fiscally related issues as well, and worked closely with Chairman Jim Henson, CEO Stan Kinsey, and CFO Richard Nanula on process improvements and other modernizations of the Disney fiscal and management structures that reduced overhead and improved middle-term stock performance.
But after two years, Peltz was ready for the next challenge, and the Shepherds Alliance still needed representation. After some internal wrangling, particularly with the remaining Faith Faction, they appointed a Group Member acceptable to both Faith and Finance as their representative on the Disney board. He was an amateur artist, a failed businessman, and the Major League Baseball commissioner whose biggest claim to fame was being the son of a former US President. Thus, in late 2001 Mr. George W. Bush replaced Peltz on the Disney board of directors, bringing a “boyish glee” to the board, simply excited at being there. He offered both a continued voice urging fiscal constraint and “the voice of Middle America” to help the board stay in touch with a significant part of its customer base. Over time he would become a close friend of Roy’s and largely support whatever actions Roy, and then later Tim Disney, who replaced Roy in 2007, supported.
Disney emerged from the battle bloodied, but unbound. With the distribution of Turner’s shares, some buyback of the abandoned Shepherd Shares, and the direct purchase of some shares from Bass, who sold off shares amounting to 2.8% of the total to pay off his margin calls, the Henson family now possessed a 21.4% stake, Roy Disney’s family held a 14.4% stake, and the Disney-Millers a 14.5% stake, meaning that between the three families they had a commanding 50.3%, making Disney for all intents and purposes a privately owned company for as long as the Henson-Disney-Miller alliance remained strong[1]. David Letterman openly joked about the time when a Henson would inevitably marry a Disney and birth “the Holy Hollywoo Emperor”, though no love connections have yet appeared in that regard[2].
However, they paid a price for this security and virtual independence, absorbing a good deal of debt (both corporate and personal) and losing some lucrative assets, in particular their stake in the Old MGM films that had proven profitable over the years and the popular A&E channel block. Still, it could have been worse. Turner could have angled for the MGM name and theme park rights in an attempt to neuter Disney’s Hollywoodland theme park, which still indirectly competed with his Peach Grove Studios Park in Atlanta. In the end, Turner realized that having Disney in his spiritual debt was far more valuable than trying to soak them.
The Walt Disney Entertainment Company, despite the hits that they took, remained in good financial shape, and markets ultimately reacted positively, regaining some of the lost ground from the sell-off and aftermath. In the ensuing months Peltz and Ackman helped find ways to pay down the debt and solidify revenue streams, calming investors and ultimately proving a positive influence on the company. Jim Henson remained the Chairman and Stan Kinsey the CEO. And as the company entered the year 1999 and soon enough the new millennium, the “Three Families” remained united, and ready for “that great, big, beautiful tomorrow” that they’d been symbolically preparing for since the days of Walt and Roy Sr.
The Board of Directors for the Walt Disney Entertainment Company, November 1998:
Stanley Kinsey, CEO
James M. “Jim” Henson, Chairman and CCO
Richard “Dick” Nunis, President and COO
Roy E. Disney, Vice Chairman and President, Disney-MGM Studios
Bob Wright (General Electric)
Al Gottesman (President, Henson Arts Holdings)
Dianne Disney Miller (Partner, Retlaw Enterprises)
Peter Dailey (former US ambassador to Ireland and Roy Disney’s brother-in-law)
Alfred Attilio “Al” Checchi (representing Marriott International)
Nelson Peltz (representing the interests of the Good Shepherd Alliance)
William “Bill” Ackman (Gotham Partners; representing the interests of Liberty Holdings)
Advisory Board Members (non-voting, ad-hoc attendance):
E. Cardon “Card” Walker, Chairman Emeritus
Steven Spielberg (Partner, Amblin Entertainment)
Steve Jobs (CEO & President of Apple Computer, Inc.)
George Lucas (CEO of Lucasfilm, Ltd.)
J. Willard “Bill” Marriott, Jr. (CEO of Marriott International)
Ray Watson, Chairman Emeritus (former head of the Irvine Company)
Caroline Ahmanson (head and founder of Caroline Leonetti Ltd.)
Philip Hawley (Carter Hawley Hale)
Samuel Williamson (senior partner, Hufstedler, Miller, Carson, & Beardsley)
Stan Lee (Chairman of Marvel Entertainment)
Ronald “Ron” Miller (CEO Emeritus)
Frank Wells (Chairman and CEO Emeritus)
The Disney Executive Committee:
Stan Kinsey, CEO
James M. “Jim” Henson, Chairman and CCO
Richard “Dick” Nunis, President and COO
Thomas “Tom” Wilhite, Chairman, Disney-MGM Studios
John Hench, President, Walt Disney Imagineering Workshop
Roy E. Disney, President, Walt Disney Studios
Stocks at a Glance: Walt Disney Entertainment (DIS)
October 4th, 1998
Stock price: $99.94
Major Shareholders: Henson family (21.4%), Disney-Miller family (14.5%), Roy E. Disney family (14.4%), General Electric (11.2%), Bass Brothers (6.5%), Bill Marriott (6.1%), Good Shepherd Alliance (3.7%), Liberty Holdings (3%), Apple Comp. (2.3%), Lucasfilm Ltd. (1.8%), Amblin Entertainment (1.5%), Suspected “Knights Errant” (4.8%), Other (8.8%)
Outstanding shares: 498.6 million
Entertainment Companies with Major Assets (1999)
Triad Entertainment Group
Chairman/CEO: Martin S. Davis
Major Subsidiaries:
- Paramount Studios
- 20th Century Studios
- Fox Studios (Includes Filmation)
- Paramount-Fox Network Television (PFN)
- Madison Square Garden (Includes the New York Rangers and New York Knicks)
- Simon & Schuster Publishing
- Sega Corp.
Warner Brothers Entertainment, Inc.
Chairman/CEO: Terry Semel
Major Subsidiaries:
- Warner Bros. Studios (Includes Warner Brothers Animation/Rankin-Bass)
- Warner Bros. Television
- Six Flags Theme Parks
- Warner Bros. Publishing (Includes DC Comics)
Universal/ABC Entertainment Group
Chairman/CEO: Tom Murphy
Major Subsidiaries:
- Universal City Studios Group (Includes Hollywood Pictures, Miramax, National Amusements, & Hollywood Animation)
- Universal-ABC Television Group
- Universal Studios Parks & Tours
- Music Corporation of America (MCA) Records
- CC/ABC Publishing
Time-Atlantic Corporation
Chairman/CEO: J. Richard Munro
Major Subsidiaries:
- Tri-Star Studios (Includes Elstree Studios and Atlantic Productions & Distribution)
- Time Media
- Time-Atlantic Television Group (includes ITV, the Atlantic Broadcasting Group, and Taft Broadcasting)
- British Satellite Broadcasting (BSB) (minority stake)
- CBS (minority stake)
Walt Disney Entertainment Company
Chairman: Jim Henson; CEO: Frank Wells
Major Subsidiaries:
- Disney-MGM Studios (includes Disney Studios, MGM, Hyperion Pictures, Fantasia Films, Walt Disney Animation, Disney Music, and Buena Vista Distribution)
- Disney-NBC Television Entertainment (Includes NBC, Disney TV, and Disney Publishing, including Marvel, Inc.)
- Walt Disney Resorts & Recreation (includes Parks, Hotels, Cruises, and Good Sports)
- Walt Disney Imagineering (includes Imagine, Inc.)
Columbia Entertainment Group
Chairman/CEO: Ted Turner
Major Subsidiaries:
- Columbia Pictures
- Columbia Television (includes CBS, the Turner Entertainment Group, and the A&E Group)
- Columbia Parks and Attractions (includes Kings Entertainment Company)
- Hanna-Barbera Animation
Penguin Entertainment Group (a subsidiary of Pearson PLC)
Chairman/CEO: Richard Daly
Major Subsidiaries:
- Penguin Pictures (includes Pathé & Pinewood Studios)
- Penguin Television Group (includes Rank, ACI, Thames, and Grundy)
- Tussaud’s Entertainment Group (Parks & Engineering; includes stakes in Disneyland Valencia and Port Disney, Long Beach)
- Penguin Animation (includes Nelvana and Cosgrove Hall Films)
- Penguin Publishing
[1] Since the “three families” are not a united group, Disney is officially still listed as a publicly traded company. Hypothetically future inter-family disagreements could lead to future issues.
[2] Much speculation circulated when paparazzi began photographing a Disney Great Grandkid and a Henson Grandkid spending lots of time together. But hopes for a HHE were dashed when one of them came out.
