Mickey Mouse under attack. A corporate raid is afoot

When last we left, Walt Disney Productions and Mickey Mouse were under attack from investor and corporate raider Saul Steinberg.  Disney was an attractive target for a hostile takeover because it was really worth more in pieces then as a whole operation, and it appeared to be Mr. Steinberg’s intention to reap his profit by breaking up this operation and sell off the pieces.  Actually, it is more complex than stated above:

In March of 1984 Disney blipped on Steinberg’s radar as a company with significant cash potential and a reduced stock value, and he began buying Disney shares at $50.  In April he filed with the FTC and DOJ his intentions to buy as much as 25% of Disney’s shares.  Within a week of that filing he owned 12.2% of Disney.  Disney COB, Ray Watson, and CEO Ron Miller began to implement a first line of defense in this attack, by begin the acquisition of other companies in an effort to lessen Steinberg’s shares.  In May, Disney agreed to buy a Florida based land-development firm, Arvida for 3.3 million shares, almost 10% of its stock.  Steinberg sued to block the deal and lost in U.S district court.  Disney then moved to acquire Gibson Greetings, as Cincinnati based producer of cards and wrapping paper, for about 6.2 million shares of Disney stock.

With these moves threatening to reduce Steinberg’s Disney holdings to under 10%, and the appearance that he was losing his bid to take Disney over, he launched into phase II of his attack, and this is where the idea that he was going to sell of pieces of the company for a profit.  He formed MM Acquisitions (you’ve probably guessed it, but the MM stood for Disney’s own Mickey Mouse), and partnered with Kirk Kerkorian, the majority stockholder in MGM/UA, additionally enlisting investments from Fisher Financial and Development.  These investment deals included options, for Kerkorian’s investment of $75 million, to buy the Disney Studios and film library for $448 million, and Fisher’s similar investment gave it exclusive rights to buy undeveloped land in Florida near Walt Disneyworld and Epcot, and the Disneyland Park in California.  MM Acquisitions then offered to buy 37.9% of Disney’s stock for deal valued at about $970 million at the time.   The offering price, per share, was a third higher than the stock price paid few months earlier.  It was looking like this new offer had a good chance of succeeding, so in a series of meetings held in New York City, a deal was struck for Disney to buy back Steinberg’s approximately 4.2 million shares at a price of $70.83 a share or about $297.5 million,  a 32 million dollar profit.  Additionally, Disney agreed to pay another $28 million to cover Steinberg’s costs associated with the attempted hostile takeover.  For this, Steinberg agreed not to acquire any Disney stock for at least 10 years.

With the immediate crisis averted, Disney’s other stockholders and institutional investors were up in arms at Disney’s management acquiescence to this successful greenmail effort and the cost to their investments.  While Saul Steinberg reaped a healthy profit of nearly 10% for his “investment”, within days of the deal being struck, Disney stock drop $16 to $49.50, and almost 5% loss for all other investors.  An almost 32% loss if you gauge it from the price that Steinberg was offer for his shares.  Disney’s management had escaped to hostile takeover attempt with their jobs, for the time being, but, a new hazard loomed on the horizon for management.   While Disney management was fending off this hostile takeover, another was in the works from within the walls of Disney.  Roy E. Disney, son of founder Roy O. Disney, had left the day-to-day management of the company years earlier over concerns for the company’s direction, resigned the position he still held on the Disney Board, after bringing arranging for the Bass family to come as White Knight investors during the Steinberg bid to take over the company.  As still a significant minority interest stockholder, Roy launched his first Save Disney campaign after resigning.  Recognizing that Disney management had been seriously weaken by the Steinberg assault, the resulting deal, and stockholder anger, Roy E. enlisted the help of the Bass family, now the largest holder of Disney stock, and board member Stanley Gold to usher in new management for the company.  At Roy’s urging, COB Raymond Watson and President and CEO Ron Miller were replaced with the team of Michael Eisner as COB and CEO, and Frank Wells as President and COO.  While I can’t find support for a claim that it was a quid-pro-quo arrangement, but, for his efforts, Roy E. Disney was reinstated as a board member and made Vice Chairman of the Board.

Next we’ll start exploring the Eisner/Wells era at Disney, but first I’m going to catch up on some of the happenings at the Museum.

Your comments or questions are always welcome.  If you have a correction or something you think I should look at in my research, please feel free to contact me at mr.grumpyguy@gmail.com