DISNEY'S BIG CHEESE VULNERABLE.

Byline: Greg Hernandez Staff Writer

As he readies for the fight of his life, embattled Walt Disney Co. chief Michael D. Eisner carries a long list of vulnerabilities into battle: A long list of friends who became enemies, struggling theme parks, weak television ratings and a hostile takeover offer that would enrich shareholders.

But industry experts and analysts warn it would be foolish to underestimate a corporate warrior as tough and as successful as Disney's chairman and chief executive officer has been over the years.

And it shouldn't be overlooked that after several years of weak corporate profits, the 61-year-old Eisner just turned in a spectacular quarter and the studio once again topped the industry in domestic box office in 2003.

``Although there are certainly a lot of people who are giving him a hard time at the moment, they certainly should not take him lightly,'' observed Jack Plunkett, president of Plunkett Research LTD, a market research firm based in Houston. ``Certainly the thing he has going for him is he's a noted fighter, an aggressive guy with a record of getting what he wants and the way he wants it.''

Since Comcast Corp. made its stunning $54 billion hostile takeover bid for the empire he has ruled for nearly two decades, Eisner has publicly appeared upbeat. At last week's investor conference at Walt Disney World in Orlando, Fla., he maintained a business-as-usual attitude, referring the offer to his corporate board for analysis and discussion.

``Acquisitions? We're buying Comcast,'' Eisner lightly joked when asked by an analyst at the conference about possible Disney acquisitions in the future.

But with a campaign to vote him off Disney's board of directors when shareholders meet next month being ratcheted up, Eisner is embarking on what many believe will be the fight of his storied corporate career.

He faces this with some mounting woes:

--Comcast's $54 billion all-stock offer has put the Disney company's performance under heavy scrutiny - especially its weaknesses like ABC.

--Roy E. Disney, nephew of company founder Walt Disney, is leading the campaign to oust Eisner. His efforts were boosted when fund adviser Institutional Shareholder Services recommended last week that shareholders leave Eisner off the board.

--The company's failure last month to reach an agreement to extend its lucrative pact with Pixar Animation Studios is being blamed by some on Eisner's management style and bitter relationship with Pixar head Steve Jobs.

--The Disney-owned ABC broadcast network remains ratings-challenged, trailing CBS, NBC and Fox. The network has lacked a true breakout hit for several years other than some of its reality programming such as ``The Bachelor.''

--Theme park attendance, while rebounding somewhat, has dragged down the company's bottom line since the Sept. 11, 2001, terrorist attacks against the United States.

Roy Disney said this week that he believes that troubles with animation, theme parks, and ABC are among the weak spots that made Disney ``an attractive target'' for a takeover bid such as the one brought about by Comcast.

``The Comcast bid did highlight how the performance has slipped in a number of Disney operations,'' said media analyst David Joyce of Miami-based Guzman and Co. ``But while some things they did wrong, some things they have no control over such as terrorism and economic recessions.''

Eisner's corporate maneuvering abilities are well known and Disney has already hired a law firm, Wachtell, Lipton, Rosen & Katz, which is known for formulating strategies to defend against takeovers.

It doesn't hurt that Disney's first-quarter earnings, released Wednesday, topped Wall Street's consensus by 10 cents a share. The company's stock price is riding a two-year high with Disney's stock up 16 percent since the Comcast offer. Any bids, including one from Comcast, will surely have to be higher than the one on the table.

``The biggest problem lies in the stock value of the company,'' Plunkett said. ``The market has not been kind to Disney. Value of stock has been flat for over two years.''

Fueling the company's performance has been its industry-dominating movie division that ruled the box office in 2003 and has grossed more than $1 billion in ticket sales in eight of the past 10 years.

In addition to the Pixar-produced ``Finding Nemo,'' Disney's studio released the blockbuster ``Pirates of the Caribbean: The Curse of the Black Pearl'' and the hits ``Bringing Down the House,'' ``Freaky Friday'' and ``Brother Bear.''

The box office hits have translated into major profits in home video, an area in which Disney has also been dominant, especially with the industry's DVD boom of recent years.

In all, first-quarter studio revenues were up by 57 percent, to $3 billion, during the quarter, helping propel overall company revenue to $8.55 billion, compared with $7.7 billion a year ago.

``I think it's definitely highlighting that there is a lot of value in the Disney assets if you look to long-term potential,'' Joyce said. ``Disney shareholders should be happy with how the stock performed. The whole scenario might reinvigorate management even if no deal comes to pass.''

Ironically, the squeeze is being put on Eisner two decades after Roy Disney, disenchanted with the management of the company by Walt Disney's son-in-law Ron W. Miller, raised the issue of Disney management.

This emboldened Saul J. Steinberg to make a tender offer for 49 percent of the company and several competing bids were made. In the end, Miller was forced out of management and Roy Disney engineered the appointment of Eisner.

This has made Eisner well aware that for all his successes and failures as head of Disney, a takeover threat does indeed have the potential to topple him from his throne.

``Eisner is going to have to try and convince shareholders that he is going to enhance the value of the stock,'' Plunkett said. ``Otherwise, there is going to continue to be clamoring for some kind of change at the top.''

Greg Hernandez, [phone]

greg.hernandez(at)dailynews.com

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Photo:

Michael Eisner, CEO and chairman of The Walt Disney Co., discusses earnings with investors and analysts Wednesday at Walt Disney World Resort in Lake Buena Vista, Fla.

Scott Audette/Associated Press