Chapter 3: The Mouth from the South
From Dis-War Two: The Great Disney Proxy Culture War of 1998, by Taylor Johnson
In early June, The Shepherds were approached by a lawyer claiming to represent Ted Turner of Columbia Entertainment. They’d gotten word through the grapevine that there were designs on Disney, and Ted “wanted in.” They arranged a visit.
At first, The Shepherds were nonplussed. The overtly political members were upset at his liberal swing since his marriage to “Hanoi Jane”. And the Faith Faction distrusted his sudden assertions that he’d “found God.”
“Look,” he said to the assembled Shepherds. “I should have listened to you. That bitch,” meaning Fonda, whom he’d recently divorced following a cheating scandal that lit up the tabloids, “is out of her mind. The vile temptress led me astray. But I’m back in the fold.”
Still, The Shepherds had doubts. “Look,” Turner said finally. “If you don’t trust that I’ve changed my ways, then trust that I will never pass up a golden opportunity to make money, or cripple a rival.” Turner offered them a deal: he’d work separately and help them seize control of Disney. In exchange, he’d claim “the whole of MGM: logo, films old and new, studios, park rights, you name it. Even Hyperion and some pieces of NBC I like, all in exchange for my accumulated shares. And if you fail, we can talk merger or exchanges to take the debt off of you. Or I can buy up shares to put a floor under the drop.”
This latter aspect won him numerous supporters from the Fiscal Faction. It was exactly what they’d asked for: top cover. Even with a minority stake they could still conceivably steer Disney and make some money, assuming they could dump some of the burdensome short-term debt and avoid margin calls.
The Faith Faction, though still dubious of his claims to salvation, still saw in him “an unwitting instrument of God,” and thus agreed to the deal.
The Shepherds by this point had already launched their strike, quickly acquiring 3.2% of the shares by the end of June through a pooling of liquid resources the various members gained through margin buys, short term loans, and liquidation of assets. Turner, however, struck out on his own. “If I’m seen as a part of this coalition,” he told them, “It will limit my flexibility. I have to be seen as neutral.”
Disney reacted to the sudden uptick in stock sales with confusion. Why was someone making a big play now? They weren’t particularly vulnerable or undervalued. Instead, accusations flew between the Disneys, each of whom suspected that the other was trying to increase their stake vis-à-vis the other. Stanley Gold openly admitted that he had met with a representative from Peltz, but claimed that he told them Roy wasn’t interested, calling it “a very short meeting.” But Diane Disney Miller, who’d never trusted Gold, was skeptical and met with Retlaw’s legal and financial advisors to consider their options. Henson ran interference and tried to calm both sides, working to arbitrate the meeting, but he could tell that there was growing mutual suspicion, telling his daughter Cheryl “the old wounds are opening up, and it’s getting harder to stem the bleeding.”
Instead, he organized a stock-buying rally: he, both Disney factions, and other members of the Round Table would work together to buy up shares themselves and improve their position, and the board agreed to initiate stock buybacks through the company in a Poison Pill strategy. Spielberg and George Lucas were on board, the latter in a good financial situation with the ongoing success of the latest Star Wars film in particular. Bass regretfully declined, citing internal financial issues and Marriott preferred not to buy more stock, though he did pledge his support to the current executives, citing his “meteoric return on investment” under their leadership. GE simply stated that it would act “in accordance with the best interests of our shareholders,” which was interpreted as a statement of neutrality in any coming battles.
Meanwhile, Peltz’s contacts had worked their sinister magic on Sid Bass, who was facing direct challenges on the Bass Brothers board of directors and facing margin calls on several of his renewable energy stocks. Bass promised to consider their offers.
Turner took advantage of liquid funds following the recent successes in the studios, CBS, and parks, and snagged a 5% stake in Disney.
The stocks kept selling and the price kept climbing. Notably absent from the scramble, for the most part, were the Arbitragers or “Arbs”, who’d been a notable and unpredictable presence in the 1984 hostile takeover attempt. Infamous Arb and Greenmailer Saul Steinberg, upon being asked about his plans, simply called it a “culture clash proxy fight by activist investors” and “of no personal advantage for me.” Other Arbs indicated similar position. There was no likelihood of any takeover here, perhaps just some change in board members, and any potential spoils were hardly worth the price of gaining a notable stake. A few happily made some minor very-short-term investments just for “day trading” on the rising price, and a few took shorts in anticipation of an eventual price drop, but there would be no “Piggie vs. Piggie” moments in this drama.
Even so, by the middle of July, with stock prices breaking $100/share, The Good Shepherd Group filed a Schedule 13D with the SEC claiming 6% of Outstanding shares as “an investment”, on top of the 5% now controlled by rival Columbia Entertainment. Together they would have influence, though they were not yet an immediate existential threat.
The big question for the Disney board became: what is the plan here?
Stocks at a Glance: Walt Disney Entertainment (DIS)
July 19th, 1998
Stock price: $101.44
Major Shareholders: Henson family (19.3%), Roy E. Disney family (12.8%), Disney-Miller family (12.9%), General Electric (10.5%), Bass Brothers (8.7%), Bill Marriott (5.7%), Amblin Entertainment (1.3%), Apple Comp. (0.7%), Lucasfilm Ltd. (0.7%), Suspected “Knights Errant” (4.9%), Shepherd Group (6.4%), Columbia Entertainment (5%), Other (11.1%; ~8% Institutional Investors)
Outstanding shares: 498.6 million