It isn’t clear whether Watson shared the letter with any other board members, but that spring, Eisner began implementing an extensive corporate reorganization—the “renewal” he’d been talking about with Wells. Sandy Litvack took Wells’s place as Eisner’s confidant and sounding board as he talked endlessly about shuffling personnel among the various divisions. To some extent the timing of the reorganization was forced upon him when Rich Frank, who was now reporting directly to Eisner as head of the television division and had parlayed “Home Improvement” into such a success, reminded Eisner that he had a provision in his contract that, if Katzenberg left and Frank didn’t succeed him, allowed Frank to leave the company with his retirement benefits and stock options intact. This provision had been retained when Frank accepted the title of chairman of the television group. Since then, he’d been disappointed at the failure to acquire a network, and clashed repeatedly with Larry Murphy, as well as Eisner himself.
When Frank finally told Eisner he had decided to leave, Eisner retorted, “You can’t. I won’t let you.”
“I can and I will,” Frank replied.
“If you walk out that door, you’re going to have to sue me” to get your stock options and other benefits, Eisner said. But he backed down after Frank promised not to join Katzenberg at DreamWorks, and agreed to pay the approximately $30 million in stock options due him.
Eisner called a meeting of all division heads that afternoon. Michael Johnson, who ran home video international, asked Ann Daly, head of U.S. home video, what was up. “Rich is leaving and they’re naming Dennis Hightower,” she said.
“That’s the most ridiculous thing I’ve ever heard,” Johnson replied.
Johnson knew Hightower well, since Hightower was the head of consumer products for Europe and the Middle East. A former executive recruiter, he was articulate, good-looking, and had earned a Harvard MBA. There was speculation that he was a former CIA agent, but no one had been able to confirm that. He had no television or other entertainment experience. (Hightower later said he could not comment on whether he was working for the CIA, but said he spent eight years working in the military, performing “airborne, infantry, and strategic operations in the U.S. and abroad as a Ranger and a senior parachutist, conducting counterintelligence and collections. You know what that means.”)
But then Eisner walked in with Hightower in tow. He made the announcement, adding, “Dennis is the man. He’s going to be the next great Hollywood executive.” It was another of Eisner’s impetuous personnel decisions, further evidence of his firm belief that a good executive can run anything. Hightower’s operation in Europe had indeed done well on the strength of Beauty and the Beast and Lion King merchandise. Still, many thought Hightower was simply fortunate to have been in the right place when such hit movies spurred a consumer products bonanza, and that living in Europe was hardly preparation for running a huge American television operation.
There was dead silence in the room after Eisner spoke. Finally Rob Moore, the studio’s chief financial officer, asked, “What does this mean for the rest of us, that you’re bringing in a complete outsider?” Eisner gave Moore a cold, piercing gaze, and didn’t answer. Johnson thought Moore had just destroyed his career at Disney.
Johnson promptly called his former boss Bill Mechanic, now at Fox, told him Eisner had just named Hightower to Frank’s job, and asked if Mechanic would give him a job.
“You’re pulling my chain,” Mechanic said. “Not even Michael could make a mistake that big.”
Frank wasn’t consulted on his replacement, and Eisner used the occasion to take a swipe in the press at Frank for harboring ambitions to replace Katzenberg, saying that, “Now at least we have an enthusiastic executive in the job. Dennis is excited to be running TV. He’s not disappointed to not be running movies,” Eisner told Fortune magazine. As for Hightower’s other attributes, “Dennis Hightower is a very smart man,” Eisner said, adding, “He’s very experienced at sitting down with our partners in Luxembourg and Taiwan.” As an African American, Hightower also brought welcome diversity to the top executive ranks.
Even more startling, Eisner put chief financial officer Richard Nanula in charge of the Disney stores. Nanula was understandably startled and dismayed to give up a top corporate post to run a chain of retail stores, and considered it a demotion, but Eisner assured him he needed operational experience and that “this will help you in the future, not hold you back.”
Moving Nanula created an opening for Stephen Bollenbach, another Marriott executive introduced to Eisner by Gary Wilson. As chief financial officer for Donald Trump, Bollenbach had helped rescue the New York developer from near bankruptcy, and was now chief executive of Host Marriot, a spin-off of the Marriott Corporation. Eisner was well aware that Bollenbach wouldn’t give up a chief executive position unless he was Eisner’s designated successor, something Wilson had also stressed. So he assured Bollenbach that, if things worked out, he would succeed Wells as president, and agreed that Bollenbach would report directly to Eisner. But the contract didn’t guarantee that Bollenbach wouldn’t report to someone else, only that if he did, he would be granted an additional 150,000 Disney shares. On those terms, Bollenbach accepted the offer, even though Eisner later conceded that he never actually considered Bollenbach a likely successor. “Given his lack of experience in entertainment and his limited interest in the creative side of our business, I doubted that would happen.” (Eisner also testified that he told Bollenbach he would never be president, but this is inconsistent with Bollenbach’s statements at the time. In his later testimony, Bollenbach said he hoped Eisner would name him president eventually.)
Indeed, even as he was recruiting Bollenbach, Eisner resumed his courtship of Ovitz. Eisner’s interest was reignited by reports that Ovitz was in serious discussions with Edgar Bronfman Jr. to run Universal, which had just been acquired by Seagram, the distilling company controlled by the Bronfman family. To Eisner, Universal posed a unique competitive threat, largely because it had a rival theme park, Universal Studios, adjacent to Walt Disney World, and a hugely successful studio tour in Universal City, something Disney itself had never been able to duplicate, and he hated the idea that Ovitz might end up as a competitor. In May, he and Ovitz had lunch at Eisner’s house. “Why would you want to go to Universal when you could come to Disney as my partner?” Eisner asked. His pitch was a skillful blend of the attributes and greater opportunities represented by Disney, and a disparagement of Universal, especially its new owners, the Bronfmans. At Disney, Ovitz would be working with his best friend and trusted confidant; at Universal, Eisner argued, he’d be at the beck and call of ruthless, mercurial family members. “A board gives you much more freedom,” he said, and went on at length about how close he was to board members and how they consistently endorsed his recommendations.
Ovitz listened, but he wasn’t swayed. With Bronfman, he was negotiating a deal that would give him a package valued at about $250 million, and plenty of autonomy. Eisner had still not defined what he meant by “partner.” Eisner left the lunch feeling that Ovitz probably would go to Universal, a view confirmed a few weeks later when Ovitz made the cover of Newsweek as the likely new chairman of Universal. But the Ovitz deal had collapsed the night before Newsweek hit the stands, when Ovitz concluded that Bronfman had reneged at the last minute on key promises, including ones related to autonomy, and Bronfman concluded Ovitz was overreaching. Suddenly Eisner’s warnings about the Bronfmans all came back to him. Eisner had been far more effective at planting doubts in his mind about the Bronfmans than he realized.
Ovitz’s embarrassing setback obviously made him available once again. Eisner sent him a handwritten note, composed during one of his many plane trips, speaking warmly of him and suggesting what great partners they could be. In this note, Eisner revealed that the thank-you note Ovitz had written after their first trip to Disney World had so moved him that he’d carried a copy of the letter with him ever since. Eisner had Irwin Russell ge
t in touch with Ovitz and resume their negotiations. Russell, however, had doubts about Ovitz for the job. His notes of one of their conversations read “Explained doubts were not related to him personally, but whether he could adapt to corporate culture (based on initial discussions) operationally financially disaster if 6 months is found out a mistake.” Eisner brushed such concerns aside.
The arrival of Bollenbach, an innovative and aggressive deal-maker, had brought a significant shift to the tone and urgency of strategic-planning meetings at Disney. In contrast to the cautious, even pessimistic Larry Murphy and Nanula, Bollenbach was a product of the 1990s deal bonanza on Wall Street. He pushed for Disney to make a major acquisition, reasoning that it takes the same management energy to digest a big acquisition as a small one. With interest rates low and Disney’s cash flow from its recent hits surging, he argued for using as much leverage as possible to boost returns. “We can borrow cheaply and easily and we ought to take advantage of that,” he argued to Eisner. While Eisner was still keen on the idea of the two remaining networks, ABC and CBS, Bollenbach was willing to consider even bigger prey—specifically, Time Warner, the huge amalgam of Time Inc. and Warner Communications.
Soon after Bollenbach’s arrival, Eisner had dinner with Cap Cities/ABC chairman Tom Murphy at Gabriel’s, an Italian restaurant near ABC headquarters on Manhattan’s West Side. Though Eisner’s talks with Dan Burke a few years earlier had gone nowhere, Murphy was starting to feel some pressure from the consolidation going on in the broadcasting industry. Murdoch’s News Corporation was the first to combine its Fox studio and the Fox network under the same corporate umbrella, and Murphy worried the other networks would end up aligning with Hollywood studios now that the fin-syn restrictions had been abolished. This was a subject Murphy had often discussed with Warren Buffett, whose Berkshire Hathaway was Cap Cities’ largest shareholder, and with Robert Iger, ABC’s president and chief operating officer. Neither Murphy nor Buffett really wanted to sell ABC, but they recognized that at the right price, they’d have to consider it in the interests of their shareholders. But after the dinner, Murphy reported to Iger that “Michael is cheap. There’s no way he’ll ever pay a price that we’d want.”
Herb Allen’s annual media conference in Sun Valley was scheduled for July, and Eisner was “absolutely determined” to be there, both to pursue the usual networking opportunities among the nation’s media elite and to prove to this rarefied audience that he was back, he was healthy, and that he was as much a player as ever—even more so. After his medical crisis of the year before, it was like “climbing back up on a horse after a bad fall,” as he put it.
The day he was scheduled to leave for the conference, Eisner convened a lunch for the strategic-planning group—Larry Murphy and his assistants, Peter Murphy (no relation) and Tom Staggs, joined by Litvack and Bollenbach—to discuss progress on the acquisitions front. Eisner would soon be mingling with every major chief executive and deal-maker, so he wanted to be prepared.
Peter Murphy outlined the case for a network, pointing out that he’d been pushing for Disney to buy one for seven years. CBS was a turnaround candidate, but was expensive at the approximately $80 per share Larry Tisch was asking. Cap Cities/ABC was already the leading network, so there was less upside potential. Cap Cities was a much bigger company, with extensive cable assets. Its stock was trading at $105 a share, which, after factoring in a premium of 15 to 20 percent, meant Cap Cities would cost Disney about $20 billion. Tom Staggs stressed the advantages of the bigger deal, especially gaining the 80 percent of ESPN, the cable sports network, that Cap Cities owned. Litvack hedged, saying he liked ABC, but could also see the case for CBS.
“I still like CBS,” Eisner said. “It doesn’t cost as much and I think we can fix it.”
Bollenbach pressed emphatically for the bigger deal, noting that it solved the issue of how to deploy Disney’s enormous cash flow by taking on more debt. “To me the issue is simple. Either we buy a relatively little house and overpay for it, or we go after this big mansion and get a bargain.” Bollenbach had already proposed a bigger “mansion”—Time Warner. Time Warner offered Disney a fully integrated media conglomerate, with creative divisions like the Warner studio, cable networks (CNN and Home Box Office), and publishing that competed directly with Disney but also distribution capacity through its huge Time Warner cable operation. “It’s big, it has great assets, and we could buy it cheaply, because the stock is undervalued,” Bollenbach argued.
Nothing could have better illuminated the fundamental differences between Bollenbach and the cautious Larry Murphy than this admittedly audacious proposal. Murphy’s eyes widened in disbelief. “You’re talking about the single most complicated, aggressive, unpleasant transaction that we could conceivably undertake,” he said.
“This one would be complicated, but I think we could do it,” Bollenbach calmly replied.
Murphy was still opposed to the idea of buying any network, though he conceded the need to find an outlet for Disney’s programming. But he thought network television was a fundamentally declining business. “The Disney strategy of sticking to our knitting and building our brand has been very successful,” he argued. But it wasn’t a prescription for 20 percent annual revenue and equity growth, nor did it use Disney’s excess cash.
Eisner was inclined to pursue something down the middle—nothing so bold as a Time Warner bid, but perhaps one of the networks. He told the group he wasn’t going to go out of his way to make anything happen, but he’d use the Sun Valley conference as an opportunity to feel out the possibilities.
That same morning, Eisner called Ovitz, who was already ensconced in one of the Sun Valley condos. Eisner was hoping to renew their discussions as soon as he arrived. But Ovitz was uncharacteristically discouraged, already packing to leave early. That morning, Bronfman had concluded his search for a new chairman at Universal by hiring Ron Meyer, Ovitz’s partner at Creative Artists, who had long toiled in Ovitz’s shadow. Bronfman was planning to introduce Meyer at the conference. “I just don’t feel comfortable at someone else’s coronation,” Ovitz told Eisner.
That, at least, is the somewhat tempered version Eisner later recounted. As usual, he gave a more candid account to his lawyer Irwin Russell, one that raised questions, at least in Russell’s mind, as to whether Ovitz was suited to be president of Disney. According to Russell’s notes of a July 17 conversation with Eisner, Ovitz was “flipped—crazed at the conference—breakdown. Can he pull his act together?”
For his part, Eisner was introducing two of his own executives to the rarefied world of Sun Valley: Litvack and Bollenbach, each of whom naturally interpreted the invitation as a sign of their own likely succession to the vacant Disney presidency. Joe Roth was also included, making his debut as Katzenberg’s successor as head of the studio. (This year, however, Jane opted to stay at home.)
When they arrived, Eisner basked in the attention that his own survival and Disney’s recent success seemed to have engendered. Herb Allen himself met him at the airport. Like Ovitz, Eisner’s quarters were in the high-status condos, not the lodge. Barry Diller and Diane von Furstenberg joined him at dinner. The next morning, he couldn’t resist dropping in on Katzenberg’s appearance on the Jack Valenti panel. At one point Katzenberg took out a water pistol and sprayed his fellow panelists. It was a relief, really, that Katzenberg’s juvenile antics no longer reflected on Disney or Eisner.
Later that morning, Eisner’s and Joe Roth’s presentation drew a standing-room-only crowd. Eisner adopted a humorous tone, making light of his own surgery and Katzenberg’s highly publicized departure. Roth unveiled his new strategy for the film division, which aimed to produce more family-oriented Disney label films (like The Santa Clause, which both Vogel and Roth agreed belonged under the Disney label, and 101 Dalmatians) and to develop several “event” movies each year, much as the animation division had turned its hits into events. Then he showed a five-minute clip from the forthcoming animated feature
The Hunchback of Notre Dame.
When Eisner returned to the podium, he couldn’t resist tweaking legendary investor Warren Buffett, who was in the audience and whose investment vehicle, Berkshire Hathaway, was the largest shareholder in Cap Cities/ABC. Buffett had bought 5 percent of Disney’s stock for $4 million back in 1965, but had then sold it a few years later at a modest profit. Had he held on to it, Eisner said, the $4 million stake would have now been worth $869 million. He drew appreciative laughter when he also pointed out that had Disney bought $4 million of Berkshire Hathaway stock in 1965, it would now be worth over $6 billion.
Afterward, Eisner returned to his room to pick up his bags, a little disappointed that he hadn’t picked up any takeover feelers at all at a conference filled with deal-makers. Then, on the path to his condo, Eisner ran into Larry Tisch and his wife, and he leaped at the opportunity.
“I’ve heard the rumors you’re about to make a deal,” Eisner said.
“They’re true,” Tisch replied, surprisingly direct. He was close to selling CBS to Westinghouse, which was diversifying into media.
“Wouldn’t you rather make the deal with us?” Eisner asked.
“Yes, absolutely,” Tisch’s wife, Billie, chimed in. Tisch said to call him over the weekend.
Moments later Warren Buffett walked up, and congratulated Eisner on his presentation. Here was another opportunity, since Buffett was a pipeline to Cap Cities/ABC chairman Tom Murphy.
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