Bornstein just looked at him and shrugged.
At Fox Family’s Westwood, Los Angeles, offices, Saban met with staff members to announce the deal. He was exulting over the $5 billion-plus price tag, especially since there were no other bidders. Eisner had brought up the baseball rights but had quickly given in when Saban had bluffed, and told him he had to take it or leave it. Saban told them the deal had been concluded in less than an hour’s meeting with Eisner.
After reaching a handshake deal in Sun Valley, Eisner and Iger flew to Aspen, where Eisner was hosting a retreat for about thirty top executives. They had already assembled when Eisner and Iger, accompanied by Peter Murphy arrived, looking, as one executive there put it, like “cats who had just swallowed canaries.”
Many at the meeting were astounded that Disney was spending over $5 billion to acquire a cable network and its programming and that Steve Bornstein and others at ABC had not been consulted. Others argued that Disney should be investing in distribution systems, either cable systems or satellite. Comcast, where Steve Burke was now a top executive, had just made a hostile bid for AT&T’s cable systems, the country’s largest. Bornstein tried to revive the idea of buying DirecTV, which made far more sense to him than paying $5 billion for the Family channel. “Why don’t we make a bid with Microsoft?” he asked.
Eisner was dismissive, arguing that Disney knew nothing about running a satellite or cable distribution system, but could easily program a cable channel. In any event, Disney wouldn’t be able to absorb another big acquisition now that it was buying Fox Family.
The Fox Family announcement coincided with the retreat, but the main purpose of the gathering was to enhance “synergy” among the top executives and foster a closer sense of teamwork. To this end, the group had been going on hikes and bike rides, and Disney had hired a consultant who had been conducting in-depth interviews with the executives, and would be presenting his conclusions at the retreat. The interviews had been revealing in ways neither the Disney executives nor the consultant had expected. The consultant asked questions about whether Disney executives liked and trusted their colleagues and worked well together. Some were less than candid, because they didn’t trust the consultant, who they suspected would be reporting everything to Eisner. Others revealed as little as possible, sitting through the interviews with barely disguised impatience. And some were honest: no one trusted anyone else, least of all Eisner himself.
The experience had left the consultant exasperated. As the Disney executives sat in a circle, he said, “The results of my research indicate that you guys are not a good team. You’re not a team at all. You’re not even a group.”
“Wait a minute,” Bornstein interjected. “How could we not be a group? Three people in a room are a group.”
“You guys are so bad you’re not even a group,” the consultant insisted.
Eisner disputed that. “How can you say that? You haven’t been to my Monday lunches.”
The session quickly devolved into arguments about the ways in which Disney management did or did not function as a team, which pretty much proved the consultant’s point. Later, Eisner dismissed the whole experiment as a waste of time. Away from Eisner, several of the participants later conceded the issue. “What Michael likes is to put six pit bulls together and see which five die,” one said.
By late summer, Stanley Gold and Roy were growing increasingly concerned about Disney’s overall financial performance. All key financial measures at the company, including return on equity, return on assets, and return on invested capital, had been steadily declining since 1995—each of these measures by more than 50 percent. The notion of Disney as a “growth” company was becoming increasingly hard to defend. Despite annual five-year strategic plans that confidently predicted a return to 20 percent annual earnings growth, Disney’s earnings for fiscal year 2002 were likely to be no better than they’d been in 1994 or 1995.
ABC’s performance was especially worrisome. The ratings of “Millionaire” collapsed, and with it went the lead-ins to ABC’s other programs. It was especially galling that two of the biggest hits on television—“Survivor” and “CSI”—had once been in ABC’s grasp and had vaulted CBS past ABC in the network rankings.
So it had rankled Gold that as chairman of the executive compensation committee, he was asked to have his committee approve a new, $9 million, three-year contract for Stu Bloomberg. As far as Gold was concerned, Bloomberg was responsible for ABC’s faltering prime-time schedule. This was very much on Gold’s mind when he arrived for the board dinner the night before the meeting in August 2001, held under a tent canopy in the garden behind Eisner’s Bel Air home.
Gold expressed his feelings to several directors. (Roy was at his castle in Ireland.) “Did you see the board package?” Gold asked them. “Did you see this Bloomberg contract? It’s a piece of shit. It’s outrageous.” And he used the occasion to question more broadly Disney’s performance. After dinner, some of the directors and the Eisners moved into the living room for drinks and coffee. As the directors said good-bye to Jane and shook Eisner’s hand at the front door, Eisner pulled Gold aside. His face reddened in anger. “What the hell are you doing?” Eisner demanded.
“What do you mean?” Gold asked.
“You’re talking to everybody. You’re causing trouble. Everybody tells me you’re upset.”
“I’m just talking to other directors,” Gold retorted. “And I am upset.”
“Your behavior is outrageous,” Eisner said.
Gold protested that he felt it was his obligation to speak up, and that it was overdue. For too long the board had passively accepted whatever Eisner told it and rubber-stamped his decisions.
This seemed to infuriate Eisner. “Are you saying you’re losing confidence in me?” Eisner heatedly asked. “Are the two of you? Because if you are, then I’ll resign. Is that what you want?”
“No, but I’m getting close,” Gold replied.
Later that night, Eisner sent an angry email to Roy, saying that Gold had been trying to undermine him and stir up trouble on the board. He also emailed Gold, telling him that the Bloomberg contract, as well as a generous deal for Lloyd Braun, was Iger’s doing.
Roy phoned Gold from Ireland to ask, “What’s this all about?” Roy read him Eisner’s email attacking him. Gold related the night’s exchanges, and said Eisner had asked if he and Roy were losing confidence in him. He reminded Roy that Eisner had promised years earlier at their victory dinner that he would resign if he ever lost their support. Had the time come to take him up on that? Gold, angry, was beginning to think so, but Roy was reluctant to do anything so drastic. He counseled patience.
The next morning both Eisner and Iger came to the committee meeting, which, in addition to Gold, was attended by committee members Andrea Van de Kamp, Sidney Poitier, Murphy, and Ray Watson. Gold began by saying he was against approving the contracts. “They make no sense, and it’s not fair to shareholders,” he said. “They have the worst record in the business.” Iger mounted a stout defense of Bloomberg and Braun, though failing to mention just who had been responsible for programming “Millionaire” four nights a week and for slashing the development budget, which meant ABC had practically nothing in the pipeline. He concluded by saying that the upcoming season “is great,” and would prove the worth of the contracts.
Andrea Van de Kamp looked at Gold and rolled her eyes.
Eisner immediately jumped to his feet, furious. “What are you looking at Stanley for?” he demanded of the startled Van de Kamp.
Gold intervened. “Michael, these numbers make no sense. Anyone can see that.”
Eisner sat back down. Despite Gold’s concerns, there was little likelihood that other board members would defy Eisner. Rather than antagonize Eisner and waste his vote as a protest, Gold decided he’d go along with the rest of the committee. The committee voted unanimously to approve the contracts. Still, Gold felt he’d made his views clear.
On Tuesday morni
ng, September 11, 2001, Bob Iger’s personal trainer arrived at his Brentwood home as usual at 4:30 for his morning workout, finishing at 5:45. Iger was walking to the shower when ABC News president David Westin called from New York. “Do you have your TV set on?” he asked. “You won’t believe this, but a plane just hit the World Trade Center.”
Iger had a TV in his shower, and turned it on to see smoke and flames billowing from Tower One. “Oh my God.”
“It doesn’t look like an accident,” Westin said.
“I’d better get into the office,” Iger said. “Call me when you know.”
Fifteen minutes later, the second plane hit. Iger called Eisner from his car, waking him up. “Turn on the TV,” Iger urged. “I’m rushing to the office to set up a command post. I’ll call you as soon as I get there.”
By the time he arrived, a third plane had hit the Pentagon, and a fourth was reportedly en route toward Washington. Iger called Eisner again, and they discussed the obvious: If the World Trade Center, the Pentagon, and possibly the White House or Capitol were targets of terrorist attacks, would Walt Disney World be next?
*Murphy insisted that Bornstein had been consulted, but Bornstein said he learned of the deal only after the Sun Valley conference. Murphy also denied saying “you know Michael” or anything else about Eisner in his conversation with Gold.
Fourteen
After he had spoken to Eisner, Iger got theme parks chairman Paul Pressler and the head of security on the phone. Disneyland Paris was nearing the end of its day, Walt Disney World had opened at 9:00 A.M., and Disneyland and the new California Adventure park hadn’t yet opened. “This is horrific,” Iger said. “We have to protect the people in our parks.”
The parks had contingency plans for a wide range of potential calamities, from hurricanes and earthquakes to crazed gunmen. Though invisible to guests, surveillance cameras were strategically placed throughout the parks, leaving little chance that an incident wouldn’t be instantly detected. There had been some accidents over the years, even a few deaths, but no catastrophes. Still, no one had contemplated the prospect of a passenger jet being deliberately crashed into one of the resorts.
Pressler and Iger made the decision to stage an orderly closing of Walt Disney World and not to open Disneyland or California Adventure. Eisner agreed. Rumors swirled throughout the day that Disney was a target, including its two cruise ships, which were in the Caribbean. Later, Iger spoke directly with Attorney General John Ashcroft, who assured him that the government had no evidence that any Disney properties were a terrorist target. Still, who could know for sure?
The decision to close the American theme parks left thousands stranded in Disney hotels, and Disney waived hotel charges for guests. In part to give them something to do, all the parks opened at their usual times the next day. But already, cancellations were pouring in. It dawned on Iger that the attacks of September 11 would have a serious impact on Disney’s financial prospects.
Iger was also on the phone a dozen times that day to David Westin at ABC News, both to learn more about what was happening and to discuss ABC’s ongoing coverage. It thrust Disney into the uncomfortable but not unprecedented position of both managing the news, as the parent of NBC, and being the subject of news, as a company that was a possible terrorist target. Generally speaking, ABC News tried to cover Disney as it would any other company, although this line between “church and state” had always made Eisner uneasy. It was understood that investigative pieces aimed at any of Disney’s businesses were off limits.
September 11 brought new strains to this co-existence. With anxiety about another terrorist attack at its peak, Westin told Iger that NBC reporter Brian Williams had a story that Spanish prosecutors had obtained what they characterized as surveillance videos of the World Trade Center, the Golden Gate Bridge, Sears Tower, Disneyland, and Universal Studios. Iger was stunned, first because he’d been assured by Ashcroft and other government officials that they had no evidence that Disney was a target, and second by the prospect that ABC News was about to label Disneyland a target, which was the worst possible publicity given that people were already afraid to travel. Suddenly Iger was thrust into the awkward role of news editor. He pressed Westin on whether Williams had actually seen the tapes.
All Williams had was the World Trade Center footage, and Iger argued that it was reckless to label Disney as a target when the government continued to insist there was “no credible evidence” that it was. But given the statements from Spanish prosecutors, Williams stood by his story. “Just treat us fairly,” Iger pleaded. After delaying for two days, ABC ran the footage of the World Trade Center and identified Disneyland as an “al-Qaeda objective.”
When Iger again confronted Ashcroft in the wake of the ABC broadcast, the FBI agreed to show the footage to Iger and other Disney executives. There were indeed scenes of Disneyland and various attractions, including “Pirates of the Caribbean” and “The Many Adventures of Winnie the Pooh.” The voice-over was in Arabic. But the comments were innocuous, and the scenes looked like standard tourist videos. Iger was annoyed with ABC News, since this was hardly what he would call surveillance, nor did it indicate that Disney was an “al-Qaeda objective.” Still, the damage was done, and further coverage by ABC would only reinforce the impression that Disney might be a target.
Despite Stanley Gold’s concerns about an acquisition of Fox Family that included the major-league baseball deal, when the proposed acquisition came before the board for approval, he and Roy both voted for it. In part this was because they weren’t prepared for a full breach with Eisner, and dissenting on such a cornerstone of the CEO’s strategy for the company would have been a declaration of war. The pro forma financial statements prepared by strategic planning and finance also impressed Gold. Even with the baseball deal, the financial projections showed 20 percent annual compounded growth easily within reach. To reach these numbers, Disney planners simply took the Fox Family results and superimposed over them the equivalent results for the most successful cable channels, such as the USA Network. The assumption was that Disney, with its marketing prowess, economies of scale, and programming skills, could bring Fox Family to those levels and beyond. As Eisner stressed to the board, “We know programming.”
This, of course, had been before September 11. The terrorist attack, which had suddenly threatened the health of the global economy, may not have been precisely an “act of God,” but it was an unforeseen material change in circumstances that might have justified Disney’s canceling the deal. While the precise economic impact couldn’t be immediately foreseen, it was obviously substantial, both for Disney itself and the Family channel, which depended on advertisers and cable operators for its revenue. The stock market, after remaining closed for the duration of the week of September 11, had reopened on Monday, September 17, and reflecting a crisis in investor confidence, dropped nearly 700 points, a record in total points, though not as a percentage decline. Disney shares were hard hit, dropping from over $23 on September 10 to $19.25 when the market reopened. They continued their downward spiral the rest of the week, and by Thursday were below $17.
The reasons were obvious. With its theme parks heavily dependent on air travel and consumer confidence, Disney faced a potentially serious decline in tourism. A remarkably strong advertising market had buoyed financial results at the increasingly weak ABC network, but the collapse of the tech bubble and now a likely drop in consumer spending clouded the outlook for ad revenue. At Fox Family, programming activities had ground to a halt once the sale was announced. Fox had agreed that any spending over $10 million had to be approved by Disney. Over the summer, as decisions had to be made to acquire programming for the fall and winter, nothing was approved, and so nothing new was ordered.
At the very least, Gold thought he could get Saban to cut the price substantially to complete the deal. He asked Eisner if he should again contact Saban to feel him out, but this time Eisner was insistent. “Stay out of this,” he warned. �
��I’ll handle it.” On the Monday after the attacks, the same day the stock market reopened, Disney went ahead with a $1 billion issue of corporate debt, all of it purchased by its investment bank, Goldman Sachs. It was the first new debt issue since the attack, and Disney said at the time that the proceeds would be used to finance the Fox Family acquisition, though its SEC registration also indicated the possibility of buying back shares.
Two days later, on September 19, Eisner got a startling call from Sid Bass, long his staunchest ally and closest confidant about Disney, even though Bass had never held a board seat. Along with the holdings of his brothers Lee, Robert, and Edward, and their father, Perry, the Basses remained Disney’s largest shareholders, even though they maintained they had ceased to invest as a group within the meaning of the securities laws, and therefore no longer had to disclose their combined holdings. In the early 1990s, the Basses had decided to go their separate ways with their vast fortune, and the Disney stake had been divided among them. By 2001, none individually held more than 5 percent of Disney’s shares outstanding, which would have required a filing with the SEC. Still, their interests remained closely aligned, and Eisner had retained the staunch support of Sid. Both Gold and Roy were well aware, as was Eisner, that the Basses and Eisner together held a controlling stake in the company, as they had ever since the Basses had thrown their support to Eisner in 1984. As long as he had the support of Bass, Eisner could pretty much afford to snub other shareholders, money managers, pension fund advisers, and even directors, since they served at the pleasure of the company’s largest shareholders.
But now Bass told Eisner that he faced a looming crisis from the continuing collapse of the stock market and the plunge in value of Disney shares. The Basses were facing margin calls on vast holdings in technology shares they had bought using borrowed money and other shares, including Disney, as collateral. The value of their holdings had fallen so low that the margin lenders were demanding that the debt be repaid. Long known as shrewd “value” investors, in large part from their wildly successful investment in Disney, Sid Bass, like many such investors, had grown impatient with the solid but unspectacular returns attained through value investing in the late 1990s, when the NASDAQ was soaring 80 percent in a year. In 1999 he had fired his investment manager and plunged heavily into the technology sector, less than a year before it hit its peak in March 2000.
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