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Inside Wall St. Two Arrows

Mouse Trap
by WealthEffect Staff

Welcome to Hollywood
(reality optional)
For a change, the best entertainment in Hollywood has been coming from Delaware, where the character-deconstruction olympics featuring Michael Eisner and his erstwhile best friend, Mike Ovitz, have provided everything but a Greek chorus. And with Disney's annual meeting less than two weeks away, the ironies keep coming. The MC of the meeting will be Robert Iger, whose primary responsibilities are the ABC television properties. Iger is rumored to be the hands-down favorite to replace Eisner as CEO next year — and given the success of the ABC network, why not?

Well, actually, wasn't he the guy who fired Lloyd Braun, who had greenlit a new show called "Lost"? And didn't he also fire Susan Lyne, who had given the go-ahead to a show which no network had wanted for years, a drama called "Desperate Housewives"? For several seasons, the optimists had argued that perenial cellar-dweller ABC was just one hit away from getting back in the game — and now they have two, thanks to two executives who were shown the door only a month before the new season began. You can't help but wonder who would be front-and-center at the Disney annual meeting if Braun and Lyne were fired just before, instead of just after, they greenlit those two shows.

If Iger is chosen to succeed Eisner, he at least comes to the job with the recommendation of his former boss at Capital Cities / ABC, Thomas Murphy — one of the genuine legends of American business. In the free-spending media world, Murphy helped to build an empire with such a concern for costs that he once reportedly declined to paint the side of a building which faced a river and therefore was rarely seen.

Two years ago, Eisner took up the banner, highlighting the importance of controlling costs: "By the way," he said in a conference call, "This is a time that is very good to have the Capital Cities cost-conscious half of our company that we acquired in '95 because Disney had this tremendous revenue growth since '84 and hadn't spent the kind of attention that we are now spending on the cost side..." Ironically, one beneficiary of the lesser concern for costs in previous times was Eisner himself, who received a stock-option package in 1996 valued at almost $200 million.

As for the 1995 acquisition of Capital Cities, the jury is still out on the advisability of that $17 billion decision. A final irony: at a cocktail party I attended in 1991, Eisner disparaged the rumor that Disney might buy CBS, noting the expense.

But that was then and this is now — and Disney's shares are lower than they were seven years ago. Yet, the stock doesn't jump off the page as a screaming buy. In fact, the media group isn't particularly cheap. For conservative investors, Time Warner arguably has a better portfolio of businesses than does Disney, the shares are selling at a lower multiple of adjusted free cash flow, and the management team under Richard Parsons has done an exceptional job to-date. For speculators, Sinclair Broadcasting is a highly leveraged play on the media group — the recent decision by the FCC not to appeal the Circuit Court decision regarding media ownership was clearly a negative, but the company's strong support for the Bush Administration shouldn't be overlooked. In Washington, as in Hollywood, it never hurts to have friends in high places.

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