“The funniest thing just happened,” Eisner said. “I ran into Larry Tisch and we ended up talking about our buying CBS. Unless, of course, you want to sell us Cap Cities for cash.” Eisner was planting the idea that Disney might buy another network, leaving ABC behind.
“Sounds good to me,” Buffett said immediately. “Why don’t we go talk to Tom [Murphy] about it?” So Eisner accompanied Buffett as he headed toward the first tee, where he, Murphy, and Bill Gates were about to start a round of golf. On the way, they spotted Murphy in a parking lot chatting with Robert Iger, ABC’s president and chief operating officer, and his fiancée, ABC correspondent Willow Bay. “Oh God, here comes Michael again,” Murphy said. Eisner and Buffett waved and gestured to Murphy to join them.
“Do me a favor,” Iger said. “Don’t sell the company without telling me.”
Iger was only half-serious, but more than anyone else at Cap Cities, he probably had the most at stake. Just a month earlier, Murphy had told him that in September, he planned to announce his retirement and ask the board to name Iger as chief executive. The move would cap a stunning rise for Iger, who, at age forty-four, had been Cap Cities’ president for less than a year.
Tom Murphy joined Eisner and Buffett, and the three went for a short walk. “Michael wants to pay cash for Cap Cities,” Buffett began. “I think he’s right.”
Murphy seemed a little taken aback by his abruptness, but he, Eisner, and Buffett briefly discussed the possibility. “I’ll have to think about it,” Murphy finally said. Just then Warner Bros.’ Bob Daly walked by. “Don’t sell your company to that guy,” he laughed, pointing toward Eisner.
Later that evening, Murphy reported to Iger that “Michael is more serious than I thought. He’s going to call me after this conference.”
The next day Eisner was in high deal-making spirits when he called Peter Murphy and Tom Staggs from his home in Aspen. “You sent me out on a fishing expedition, and I’ve come back with two bites,” he said. “Now we have to figure out what to do with them.” Sid Bass was also at his house in Aspen, so Eisner had Murphy and Staggs fax him a stack of documents comparing CBS and ABC. Just twenty minutes later, Bass called Eisner. “This Cap Cities deal looks pretty good,” he said, assuming Murphy would sell at a reasonable price. “We should probably go ahead and make the deal.”
The following morning Eisner reached Tisch at the Bel Air Hotel, and arranged for him to negotiate with Bollenbach. The rest of the day passed with no word from Tom Murphy. On Tuesday morning, Murphy called. He was willing to negotiate a deal, but only if it were for Disney stock rather than cash. “I want my shareholders to have a ticket on the horse race, a chance to ride on the future of the new company,” he explained. And he didn’t want them to have to pay capital gains tax on the proceeds of a cash sale. (There’s no immediate tax on a sale for stock.) Eisner was going to be attending his nephew’s wedding in Vermont that weekend, so he suggested meeting Murphy in person in New York that Friday. Bollenbach was already meeting Tisch in New York the same morning. Murphy agreed. He and Iger had continued to discuss the possibility of selling the company, and it was clear to Iger that Murphy was deeply ambivalent. Iger, too, would be giving up his dream of becoming a chief executive, just when it seemed within his grasp. “If they meet our price, we’ll sell,” Murphy concluded. “If not, forget it.”
Eisner, Bollenbach, and Peter Murphy met on West Sixty-sixth Street, just outside ABC’s headquarters. Bollenbach reported that Tisch had again pushed up the price for CBS, to $80 a share, which was discouraging. After walking around the block, Eisner decided he’d offer $115 a share for Cap Cities, which he considered a relatively modest premium, considering that Cap Cities shares were trading at $106. The meeting went on for two hours. Though retired, Dan Burke sat in as an adviser to Tom Murphy, and argued against an all-cash deal as putting too much debt on the Disney balance sheet. But neither he nor Murphy seemed startled when Eisner broached the price. On one hand Eisner was pleased, but the obsessive bargain hunter in him immediately wondered if he could have offered less, say $110 a share.
The meeting ended with no movement on either side in the cash versus stock debate. Eisner was pessimistic as he headed off to the family wedding, but Murphy had promised to get back to him after the weekend. On Monday night, Eisner and Jane flew to Toronto for the first road company preview of Beauty and the Beast. Even though he’d seen it many times, Eisner still loved the excitement of a new opening, and he lingered afterward for two hours discussing details of the show with the director and choreographer.
The next morning Tom Murphy called with a counteroffer: one share of Disney, then trading at $55, plus $65 in cash, or a total of $120. “It sounds like we’re getting someplace, Tom,” Eisner replied. It was a reasonable compromise, roughly half stock and half cash, and only a small premium to the Disney offer price. Peter Murphy and Staggs wanted to accept immediately. Larry Murphy still resisted. Meanwhile, Diller reported that a CBS-Westinghouse deal was about to happen, which, once announced, would rob Disney of leverage with ABC.
On Thursday morning, Eisner called Tom Murphy from his treadmill, where he was dutifully working to elevate his heart rate. The deal-maker in Eisner was determined to squeeze a few concessions out of Murphy. He tried lowering the stock component. Murphy said no. He tried chiseling $2 off the price, noting that Disney’s stock had hit $57 the day before, $2 more than when they’d talked. “Michael,” Murphy said. “I told you yesterday the deal that we were willing to make…. That’s the deal. The only question now is whether you want to make it or not.” Stumped, Eisner said he’d call back.
When he got into the office, Eisner called Bob Iger. “I want to talk about your staying on,” Eisner said. Iger said he wasn’t sure he was at liberty to negotiate before a deal was reached, considering he was president and chief operating officer as well as on the board. Negotiating for a high-level position in the new company might pose a conflict of interest. “Ethically, I’m not sure what my position should be.” Nor was Iger sure that he wanted to work in the new company. Given his Cap Cities stock and options, the proposed deal would make him rich; he didn’t need the job. Then Eisner took the opportunity to excoriate Iger for negotiating a deal with DreamWorks, which Iger didn’t appreciate. He said he’d have to call him back.
Just before noon on the West Coast, Eisner called Tom Murphy. “Tom, I need to get something.”
Murphy was firm. “Michael, I’ve told you what we’re prepared to do.”
Eisner took a deep breath. “Okay. You’ve got a deal.”
So long opposed to acquisitions, Eisner had just agreed to one which, at nearly $20 billion, was the second biggest in history. When Eisner broke the news to his mother over dinner, he commented, “Pretty exciting, isn’t it?”
“Yes,” his mother said. “I can’t believe Amy’s getting married.” Amy was Eisner’s niece, who had just announced her engagement.
As the lawyers wrapped up the details, Eisner began calling board members, starting with Gold, to report that he had a “handshake” deal with Murphy. Gold was supportive, as was Roy, though Roy took more persuading, worried that acquiring a network would stretch the Disney brand too thin. Eisner also called Ovitz, telling him that he now had a network he could offer him. “This company is going to be too big for me to run,” he said. Eisner reminded him that their long and close friendship had begun while Eisner was at ABC.
Despite making Iger his heir apparent, Tom Murphy told Eisner at a private lunch in the Cap Cities executive dining room that one of the reasons he was selling the company was that Iger wasn’t ready to succeed him as chief executive. He was still too young and unseasoned (a comment Eisner repeated to Disney board members and Ovitz). Still, Murphy lavished praise on Iger, and urged Eisner to keep him at the network, stressing that Iger was on top of all of Cap Cities businesses. Eisner called Iger again now that a deal had been reached. This time Iger indicated a willingness to stay on, though he realized he w
as no longer in line to be CEO of Cap Cities. “I’m only forty-four years old,” he pointed out, “and this is a chance to be part of a historic merger.” He was also determined to protect his colleagues at Cap Cities. He’d been at ABC ten years earlier, when Cap Cities had acquired the network, and he knew how it felt to be among the “conquered” after a merger.
That evening, Iger and Willow Bay were having dinner with the Catholic priest who was going to marry them that October. Divorced and Jewish, Iger was nervous about making a good impression, but he kept getting interrupted by urgent calls on his cell phone. Finally Iger felt he had to tell the priest what was going on, swearing him to silence. He figured if he could trust anyone to keep a secret, it was someone with experience in the confessional. One of the sticking points in the contract his lawyer was negotiating with Eisner was whether Iger would report only to Eisner. Eisner said he had to have the right to bring in a president, and require that Iger report to him. Iger finally agreed, reasoning that he had as good a shot as anyone at becoming president.
The Disney board met by telephone for three hours on Sunday afternoon, August 6,1995. Eisner stressed that he had intimate knowledge of television programming from his successful tenure at ABC. He’d revitalize ABC the same way he’d awakened the moribund Disney studio. Given Eisner’s track record at Disney, the board had no reason to doubt him. The vote to approve the merger was unanimous.
After the board approval, Tom Murphy and Iger met with their chief financial officer and head of public relations, briefed them on the deal, and told them to prepare for the announcement. When they left, Murphy closed the door. “Jeez, I don’t know if I’ve done the right thing,” he said to Iger. He seemed sad and forlorn. Even though he’d be remaining as a board member, he realized that, at age seventy, his own long and distinguished executive career was over. It was a sad moment for Iger as well. He’d never worked for anyone other than Murphy and Dan Burke. He barely knew Eisner.
That evening Iger called top Cap Cities executives and broke the news, swearing them to secrecy and summoning them to an early breakfast meeting the next morning. ABC News was told only that there’d be a major corporate announcement during the next morning’s broadcast of “Good Morning America.” Willow Bay was subbing for Joan Lunden that Monday morning, and co-anchor Charlie Gibson asked her, “On a scale of one to ten, what is this?”
“It’s a twelve,” she replied.
Soon after, Eisner and Murphy showed up, and Gibson interviewed his outgoing and incoming bosses about the proposed merger. Afterward Eisner and Murphy addressed Wall Street analysts by conference call from Cap Cities’ boardroom, flanked by Sid Bass and Warren Buffett, Disney’s and Cap Cities’ largest shareholders, respectively. “I’ve been a critic of many deals that have taken place over the years,” Buffett said. “I think this is the most sensible deal I’ve ever seen from both a financial and an operational standpoint, and I’m delighted as a Cap Cities shareholder.” As well he might have been, since he’d just earned a premium on the huge Berkshire Hathaway stake in Cap Cities.
At the time, the value of the deal was eclipsed only by the RJR/Nabisco merger in 1989, and was described as a “stunning surprise” in The New York Times; a “landmark merger that creates the largest entertainment company in the world” in the Los Angeles Times; and “Disney creates a new Magic Kingdom” in The Wall Street Journal. Eisner quickly experienced firsthand why giant mergers can be so intoxicating. Congratulatory calls poured into his office: the Sun Valley crowd, from Diller to Gerry Levin, Sumner Redstone to Jack Welch; Disney people, including Luanne Wells and composer Alan Menken; political figures and journalists. Eisner finally spoke to Katzenberg for the first time since he had left the company. Katzenberg had always wanted Disney to acquire a network, and now it had. Eisner was anxious about taking his call, but given the DreamWorks deal with ABC, he’d have to deal with Katzenberg eventually. Eisner was relieved that the conversation was uneventful and that Katzenberg graciously wished him well with the merger. That night Eisner and Tom Murphy continued the round of talk shows, appearing on “Larry King Live” and “Nightline.” Ken Auletta, writing in The New Yorker, bestowed the highest accolade: “Eisner’s triumph has transformed him once again, from the frog back into a prince.”
No one was more electrified by the news than Steve Burke, Dan Burke’s son, who’d grown up calling Tom Murphy “Uncle Tom.” Burke felt he was languishing in Paris, off the radar screen now that Euro Disney had been restructured and renamed as Disneyland Paris. (Despite the “rebranding” effort to shake off the negative associations with Euro Disney, just about everyone outside of Disney kept referring to it by the old name.) More important, his children were reaching school age, and he wanted to move them to the United States. Burke used every opportunity to remind Eisner that he’d promised to bring him back from Paris.
Nothing had yet materialized, but Eisner assured him that now something would. What better person to help integrate Disney and ABC than Burke, who knew both corporate cultures intimately?
One day Jeffrey Katzenberg called, saying he was going to be in Paris and would like to get together. Though Burke had never been as close to Katzenberg as he was to Wells and Eisner, he admired his achievements. He was surprised when, at their meeting, Katzenberg asked him if he’d be interested in joining him at DreamWorks. Burke declined. “Why not at least consider it?” Katzenberg asked.
“I feel a lot of loyalty toward Michael,” Burke answered.
“I promise you, someday that will change,” Katzenberg said. “Michael Eisner has no loyalty to you.”
“Yes he does,” Burke insisted.
“Let me tell you something,” Katzenberg continued. “Fundamentally, Michael doesn’t care about anybody else. Maybe his wife. All Michael cares about is Michael.”
With the Cap Cities deal, Disney nearly doubled in size, which also doubled Eisner’s responsibilities. In a sense, it was the ultimate public statement that Eisner’s heart attack hadn’t diminished him, even if it flew in the face of his doctors’ advice to reduce stress. As part of that effort, Eisner had been planning to spend the month of August with Jane in Aspen, getting some aerobic exercise by hiking and biking and, to the extent he was capable, resting. Much to Jane’s dismay, those plans evaporated. Now his time was consumed with meetings and phone calls. Jane did her best to remind him that he was supposed to be doing less, that he needed more help, that he should hire someone to replace Wells. Eisner listened, but at the same time he embraced the new venture with zest. He was actually enjoying the stress. But he promised her he’d renew the effort to recruit Ovitz. At the same time, he invited Litvack and his wife, Judy, to join them in Aspen the following weekend.
The Litvacks arrived anticipating that Litvack himself was likely to be offered Wells’s job. After all, he’d been functioning as chief operating officer, which had been Wells’s position. He’d rescued Disney from the brink of disaster with Euro Disney, and he was leading the legal team in the Cap Cities acquisition. He’d made his debut in Sun Valley, mingling comfortably with other top media executives. More to the point, he’d become Eisner’s confidant, his closest adviser. Or so he thought.
After a pleasant day of hiking and relaxing, the families had dinner, and then Litvack and Eisner sat down alone together. When Eisner said he wanted to discuss something with him in confidence, Litvack prepared to discuss his own future role at Disney. Then Eisner raised the subject of Ovitz.
Eisner was not so insensitive as to fail to realize how disappointed Litvack was likely to be at the prospect of Ovitz becoming president. “He was conflicted,” Eisner later said of Litvack. “He didn’t criticize so much the selection of Ovitz per se…. But he did criticize the need to bring in anybody because it was quote unquote ‘going so well.’I think he liked the fact that he probably thought himself that he was No. 2 and this was changing—this was bringing in the wicked stepmother…well, I shouldn’t say wicked stepmother. Bringing in an alien for
ce.”
Litvack’s dismay soon became apparent. As they talked, Eisner brought out a piece of paper and divided it into two columns, one for the “pros,” the other for the “cons” of hiring Ovitz. Eisner proceeded to supply the “pros,” and Litvack stressed the “cons.” Litvack pointed out that Ovitz was Eisner’s close friend, and “if things go wrong, you not only lose a colleague, you lose a friend. It could be very messy.” Litvack also conveyed his own personal disappointment. “One of the things I’ve valued most about the past year is that I’ve been your closest counselor,” Litvack said, almost plaintively. “If you hire Ovitz, that’s obviously going to change.”
Eisner disputed that, saying Ovitz’s skills were “complementary,” adding, “I don’t think your role will be diminished.” Still, by the time Litvack and his wife left Aspen, Eisner sensed that Litvack wasn’t convinced, and thought he might even quit. But early the next morning, Litvack called him from California. “I want you to know I’m prepared to do everything possible to make it work,” he said, swallowing whatever disappointment he must have felt.
Though he didn’t choose to share them with Litvack, Eisner could have listed quite a few “cons” in his assessment of Ovitz. Foremost among them was the opposition of Sid Bass, who said he was “firmly against” hiring Ovitz for the simple reason that Ovitz was “unqualified.” Moreover, Bass told Eisner that he didn’t trust Ovitz, who, at their first meeting, had lied. “That’s typical of Ovitz,” Eisner had replied.
Irwin Russell, Eisner’s personal lawyer who also was chairman of Disney’s compensation committee, and who was handling negotiations with Ovitz, had also expressed reservations. Russell had raised questions about Ovitz’s stability, as his notes from July indicated, and he’d warned Eisner that he doubted Ovitz understood the level of public scrutiny that would come with being president of a public corporation. Eisner had agreed with him as well, saying Ovitz “would require further education.”
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