[Chapter 429: Scorched Earth]
Despite pressure from Firefly as a Disney shareholder, Disney's management took a full week before announcing the latest financial report to investors. Due to two years of poor performance, Michael Eisner chose not to issue the customary quarterly report. Instead, he devoted considerable space to reflecting on Disney's overall progress since he became CEO in 1984. He highlighted that, before 1990, Disney's market value had been growing at a rate of 27% per year. Eisner claimed that the failures of films like Cutthroat Island and last year's The Rocketeer were just unfortunate incidents. He emphasized that Disney's broadcasting, theme parks, and consumer products divisions were providing stable profits for the company, meaning that the failures of a few films would not bring Disney to its knees.
At the end of the report, Michael Eisner confidently assured stakeholders that reforms would soon be enacted in Disney's film division, vowing that the company would regain the growth pace it had enjoyed just a few years prior. He called on Disney shareholders to stand united against the hostile takeover attempts by Firefly.
...
In response to Eisner's attempts to downplay Disney's recent financial woes, Firefly quickly retaliated by leaking an insider article about the production of Cutthroat Island to the New York Post.
"According to sources from the Cutthroat Island crew, Michael Eisner was involved in every detail of the film's production -- from script revisions to post-production editing. Even the film's set style and actor costumes had to be approved by Eisner. His heavy-handed intervention during the production severely restricted director Renny Harlin's ability to implement his creative vision, ultimately leading to the film's failure.
It is evident that Michael Eisner is a micromanager. Such a management style, in an environment where a manager's power grows unchecked, significantly stifles the enthusiasm and productivity of the individuals directly responsible for the work, driving truly talented people to seek opportunities elsewhere while leaving behind those who simply pander to the whims of superiors.
There is no doubt that Eisner made significant contributions to Disney in its early years. However, recent developments indicate that his obstinate management style has begun to show cracks, which could result in immeasurable losses for Disney in the long run."
...
Following the publication of the article, Michael Eisner's agent immediately responded, claiming that the New York Post's report was a slanderous attack against him. Eisner reserved the right to pursue legal action regarding the slander.
While the media noise flared up, the real battleground lay in unseen corridors. At Firefly's headquarters in Burbank, Bernie Sanders, the head of the Morgan Stanley acquisition team, discussed the specifics of their acquisition strategy after Disney's board rejected the friendly buyout.
"In 1984, when Saul Steinberg made his hostile takeover attempt against Disney, the company resorted to paying 'extortion ransom' as a counter-strategy, redeeming shares valued at less than $200 million from Steinberg for a whopping $300 million. This time is different; Disney shareholders seem to be taking a wait-and-see approach towards Firefly's bid. To this point, most shareholders have only agreed to Michael Eisner's 'golden parachute' agreement, since it wouldn't harm their interests. The agreement stipulates that if the acquisition succeeds, Firefly would need to pay a total of $500 million in compensation if any of Disney's 76 executives are forced to leave within two years."
Eric asked, "What if I just want Michael Eisner to leave?"
Bernie Sanders glanced at his notes and replied, "Eisner originally proposed a scorched earth tactic. If any one of the 76 executives were to be let go, as retaliation, the remaining 75 would resign, turning Disney's management into a barren 'scorched earth.' However, Disney's management did not support Eisner's proposal, and the board did not approve it. Therefore, if only Eisner were to be forced out, Firefly would need to pay him $30 million."
"$30 million? That's it?" Eric couldn't help but ask. He recalled that back in his past life, Michael Ovitz, after only working at Disney for a little over a year, received compensation exceeding $100 million when he was forced out.
Chris, sitting next to Eric, rolled his eyes. "Eric, Michael Eisner's current annual salary is $750,000. $30 million is equivalent to 40 years of his salary. Do you still think that's low?"
Eric raised a brow. "What about stock options and profit-sharing?"
"According to Eisner's 1984 agreement with Disney, he wouldn't be eligible for stock options and profit-sharing until after five years based on performance. Earlier this year, the Disney board formally approved the relevant plan," Chris explained, sounding somewhat gleeful. "But shortly thereafter, Disney's performance plummeted. The summer releases resulted in losses of up to $100 million, and aside from other revenue streams to offset this loss, Disney also had to cover $150 million in maturing debts and interest, barely managing to break even. So stock options and dividends became moot."
After Chris spoke, Bernie Sanders added, "But I need to remind you, Eric, among the 75 executives who aren't Michael Eisner, 18 have very close ties to him and are considered his confidants. Their total compensation would amount to $220 million."
Eric discreetly glanced at Michael Lynn sitting not far off, and wasn't overly concerned. After the acquisition, he'd evaluate these individuals based on their performance and make necessary arrangements. Just like those high-level executives left behind from New Line, most had become backbones of Firefly now, and no one ever argued about high salaries and benefits.
"Let's hold off on these matters until after the acquisition is finalized. I still hope Disney's current management can remain intact, though Michael Eisner certainly can't keep his position."
Bernie Sanders nodded and flipped to the next page of his notes. "Additionally, Eric, based on our team's assessment, a full acquisition isn't the best option. If we only sought to acquire a controlling stake in Disney, given Firefly's outstanding performance in film, many Disney shareholders would likely be willing to sell part of their shares, incurring much lower costs."
Eric shook his head. "Bernie, I've said before, I don't want external investors to interfere with the company's development, and I wish for Disney to become privatized. That would facilitate integration with Firefly."
Bernie Sanders, adhering to his professional integrity in providing Eric with advice, observed Eric's firm stance and decided against further persuading him. He moved on to other topics.
...
Following the meeting, Firefly quickly held a press conference. Michael Lynn, CEO of Firefly Films, made the first formal offer to Disney, proposing a complete buyout at a price 20% higher than Disney's stock value on the day the public acquisition bid was announced.
Meanwhile, at Disney's headquarters in Burbank, Michael Eisner sat in his large office chair, reviewing the recent offer documents from Firefly that his secretary had just delivered. He said to Disney President Frank Wells, "$4.2 billion, and their first offer is a 20% premium. I wonder what Firefly's bottom line will be."
Frank Wells, noticing Eisner's noticeably deeper-set eyes, didn't know how to respond. Eisner seemed to be speaking to himself without expecting an answer.
In the week following Firefly's announcement of their acquisition offer, Eisner tirelessly visited over 30 investment institutions and creditors, seeking support. However, this time the situation was completely different from 1984, when shareholders rebuffed the hostile takeover bid from Wall Street tycoon Saul Steinberg. Many investors appeared hopeful about the current acquisition attempts, declining to offer Eisner any assurances, rendering many of his aggressive countermeasures untenable.
Although Eisner chose vague terms in releasing the financial report, most investors were acutely aware that Disney's film business had been on a downward trend for the past two years. Even if Disney's other ventures continued generating stable profits, the development of quality films remained the company's most crucial foundation. Without sufficient blockbuster films, Disney's global parks and stores would struggle to introduce new projects and products, ultimately leading to falling ratings for Disney-branded television channels.
Firefly, with its stronghold in film content -- powerful enough to overshadow its channel disadvantages -- stood in stark contrast to Disney's well-developed networks, creating a perfect complementary effect. This became even more apparent after the success of Pixar's Toy Story. Though Firefly refrained from releasing its financial report, it did share some operational details with Disney as the acquiring party.
Frank Wells had taken a closer look at Toy Story's relevant data. The movie had not only grossed over $100 million at the box office but also saw associated toy sales from licensing reach $40 million in just a month. Given that toy sales cycles often exceed film release cycles, even after a film leaves theaters, measures like home video distribution and television airings could still stimulate toy sales. While this might not compare to the hundreds of millions earned from Star Wars merchandise, the various licensing agreements meant the film could yield significantly higher profits over the next few years compared to box office and video distribution earnings.
Furthermore, developing toy merchandise had always been one of Disney's strengths. Disney had over 300 stores in the U.S. alone. Frank Wells had someone perform a rough evaluation and surmised that if Disney had the chance to develop Toy Story's merchandise, profits might increase by at least 30%.
What he observed would certainly not escape the notice of Disney's shareholders. If Firefly's acquisition proposal leaned toward obtaining a controlling share instead of a full buyout, it was likely that many shareholders had already begun tipping in favor of Firefly.
After a moment of silence, seeing that Eisner had nothing more to say, Frank Wells finally spoke up, "This acquisition can't possibly conclude in the short term. If Disney's films perform well during the New Year release, we might regain shareholder support."
"I'm not Eric Williams; where am I going to find..." Michael Eisner started but stopped midway, unwilling to mention Eric's name. He continued, "I watched several film previews yesterday and saw that Beauty and the Beast and the remake of Elisabeth Taylor's Father of the Bride look promising. However, Robert Benton's Billy Bathgate is subpar. This film cost $48 million, which is the total of what the other two films cost combined, yet everyone who watched it felt it was even worse than Cutthroat Island. I'm wondering if we should push its release to next summer instead."
"It's probably best to postpone it; we can't let this film affect things further," Frank Wells replied, suddenly recalling, "I remember Nicole Kidman was initially invited to play the lead. She turned it down."
"Eric Williams' Nicole?"
"Yeah, if we had realized that sooner, we might have approached the project of Billy Bathgate with a bit more caution."
"Or it might just be a coincidence," Michael Eisner said, irritated, waving his hand dismissively. "Let's stop talking about him."
As they were speaking, the phone on the desk rang. Michael Eisner picked up the receiver. The secretary on the other end said, "Mr. Eisner, I just received a call from someone named Sumner Redstone. Should I put him through?"
"Sumner Redstone, the Sumner Redstone from Viacom?" Michael Eisner confirmed, while Frank Wells perked up at the mention of the name.
The secretary confirmed, and Michael Eisner seemed to realize something and quickly said, "Put him through."
Afterward, he glanced at Frank Wells and hit the speaker button so that Frank could hear their conversation.
Soon, a somewhat aged yet robust voice came through.
...
At Eric's Malibu estate, he sat on the living room sofa looking at Disney's list of films currently in production and set to be released soon. Understanding the significance of the New Year releases for Disney, Eric was considering how to counter Disney's films set for year-end.
Among the ongoing productions, he recalled that the pinnacle of 2D animation, The Lion King, hadn't yet started, but another film, Aladdin, was already underway.
Additionally, among the Year-End releases, he noted two familiar films: Billy Bathgate and Beauty and the Beast. Of Billy Bathgate, his strongest recollection was of Nicole's scenes; as for the storyline, there was little of interest to mention. It attempted to mimic The Godfather and Once Upon a Time in America but ended up being a muddled affair without any highlights.
More of Eric's focus landed on Beauty and the Beast, which he knew, in the original timeline, became the first animated film in Oscar history to receive a Best Picture nomination. Although the data in his hands indicated that the animated film would premiere in only over 900 theaters, Eric remained cautious.
If the sequel to Home Alone continued under Firefly's production, releasing it simultaneously with Beauty and the Beast might be a viable strategy to counter Disney.
Fox had already begun production on Home Alone 3, but had not publicized a release date. Following the schedules of the first two films, Home Alone 3 might also release at Thanksgiving, coinciding with Beauty and the Beast. But who knew if Fox would change its mind? Perhaps it would be wise to probe a bit.
While Eric was considering placing Jim Carrey's film Dumb and Dumber in the Thanksgiving slot as well, Nicole emerged from a bathroom, her hair wrapped in a towel.
Seeing Eric staring at her, she asked curiously, "What are you looking at?"
"Your legs!"
Nicole shot him an exasperated glance as she walked over and sat beside him, glancing at the materials in his hands. She knew that what Eric perused outside the study was usually not confidential, so she felt no reservations.
Eric pointed at the materials. "Are you familiar with Billy Bathgate?"
"Yeah, I received an offer for that script; I could've worked alongside Dustin Hoffman and Bruce Willis. However, there were some scenes that I wasn't comfortable with, and despite discussing it with the director several times, they refused to remove those scenes, so I passed on it."
Eric smiled. "Good thing you didn't take it, or after two consecutive flops, you'd have been labeled a box office poison."
Nicole raised an eyebrow, "How would you know? This is a Disney film, right? And it hasn't even been released yet."
"Just look at its release date, November 1. A film with a production cost nearing $50 million shoved into a November 1 slot has no second reasons aside from the fact it's a failure," Eric explained.
Nicole agreed with Eric's perspective, relieved yet playfully added, "Maybe Disney thinks it's just like The Others, and can ignore the release date?"
*****
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