BOARD URGES SUPPORT FOR CEO EISNER SHAREHOLDER LETTER PRECEDES MEETING.

Byline: Greg Hernandez Staff Writer

BURBANK - The board of directors of The Walt Disney Co. urged support for embattled Chairman and CEO Michael D. Eisner and the company's current leadership in a letter to shareholders made public Monday, just ahead of a crucial annual meeting in Philadelphia.

The urgent letter touted the company's performance and said it expects to increase its earnings from continuing operations in excess of 30 percent and expects double-digit growth in earnings through at least 2007.

``This strong performance reflects the business, financial and creative direction of Disney under the leadership of Michael Eisner and his management team,'' the board stated. ``Your board believes the company's current structure and strategy will maximize shareholder value.''

The showdown between Eisner, among those up for re-election at the shareholder meeting Wednesday, and his foes continued to escalate Monday as two other major state pension plans announced their opposition to re-electing Eisner to the board of directors of The Walt Disney Co.

The Ohio Public Employees System and the pension fund for state workers in Florida on Monday joined a growing chorus of shareholders in saying they want to see Eisner's roles of chief executive officer and board chairman be made separate.

``In order for the Disney board to exhibit good governance practices, the role of CEO and chairman of the board need to be split to increase board independence,'' said Cynthia Richson, OPERS corporate governance officer.

The Florida pension fund is the fourth-largest in the nation and owns 7.3 million Disney shares.

``In the final analysis, everything that has impacted the erosion of shareholder value leads back to a major corporate governance issue that concerns us, which is allowing one person to serve both as chief executive officer and board chairman,'' Coleman Stipanovich, executive director of the State Board of Administration of Florida, said in a statement.

OPERS, the largest state pension fund in Ohio, owns 4.7 million shares of Disney stock valued at $125 million. It is the 10th largest state pension in the country.

Farouki Majeed, OPERS investment deputy director, said that the ``poor performance'' of Disney stock over a fairly long period of time was another major consideration in their decision not to support Eisner.

``We expect that our vote will result in positive changes in Disney's governance structure and better stock performance,'' Majeed said.

OPERS representatives made an effort to stay out of the fray in regards to the bitter campaign being waged by dissident shareholders Roy E. Disney and Stanley Gold to oust Eisner.

``Our votes are based strictly on our own thorough and due diligence of the situation,'' Richson said. ``We met with both sides, representatives for Roy Disney as well as Michael Eisner, the chairs of the audit committee and the compensation committee and the chief financial officer in order to hear both perspectives prior to making our voting decisions.''

Gold and Disney said they are ``extremely gratified'' by the growing anti-Eisner sentiment and sent a letter to shareholders Monday reminding them to either vote or to ``change your vote'' against Eisner.

``We urge you to vote . . . and send an unmistakable message that it is time for a change in senior management,'' they stated. ``Tell the board you believe it is time to replace Michael Eisner - eight years of substandard performance is long enough.''

In its shareholder letter, the Disney board said that voting to re-elect the current board would be ``making an important statement'' and be in the best interests of enhancing shareholder value.

``You do not want The Walt Disney Co. distracted from concentrating all its talents and resources on continuing the company's momentum and continuing its rich tradition of creative excellence,'' they stated.

The pension fund revolt against Eisner began last Wednesday with the California Public Employees' Retirement System- the largest public pension fund in the United States. New York, Connecticut, New Jersey, Massachusetts, North Carolina and Virginia are among the other state pension funds that will be withholding support of Eisner, who will nevertheless be re-elected because he is running unopposed.

Corporate governance experts say anything higher than 20 percent is a high enough number to send a strong message to the board that it could be time for a change at the top. Some preliminary estimates of anti-Eisner sentiment run as high as 30 percent.

Eisner has been under heavy fire since Feb. 11 when Comcast Corp. made a hostile takeover bid for Disney. Eisner and the company appeared to have weathered the Comcast bid, which the board rejected. But the loss of support from the pension funds comes as influential Wall Street players Institutional Shareholder Services and Glass Lewis & Co. have also called for Eisner's ouster from the board.

Meanwhile, the Disney company tried to emphasize the positive Monday.

The Walt Disney Studios announced that it has entered into an agreement with Walden Media to co-finance and distribute the movie version of ``The Chronicles of Narnia: The Lion, the Witch, and the Wardrobe,'' the first book published in C.S. Lewis' famed series. The agreement allows for future films in the series.

And the studio's home video division announced DVD and VHS sales of ``The Lion King 1 1/2'' have reached $6 million, making it the best-selling home video so far this year.

Greg Hernandez, [phone]

greg.hernandez(at)dailynews.com