Disney's World Turns

It has the makings of a soap opera, but it's real life for Walt Disney (NYSE: DIS  ) . In the latest twist, Vice Chairman Roy E. Disney is walking and has urged CEO and Chairman Michael Eisner to follow him out the door.

Ironically, back in 1984, Mr. Disney headed the battle to land Eisner. Just last year, Mr. Disney's business associate and fellow board member Stanley Gold questioned Eisner's turnaround efforts, but according to Disney, it was way back in 1994, with the death of former president Frank Wells, that the company "lost its focus, its creative energy, and its heritage."

Specifically, Mr. Disney chides Mr. Eisner's inability to rescue ABC "from the ratings abyss it has been in for years." Believe it or not, when Disney purchased Capital Cities in 1996 for $19 billion, ABC was the number one TV network. It's been number four in recent years.

What went wrong? For one, Disney lost talented senior executives in what Mr. Disney terms a "creative brain drain." It doesn't help that a number of these executives -- Michael Ovitz and Jeffrey Katzenberg come to mind -- left the building with exorbitant severance packages.

Adding to the irony (and what's a soap opera without some), Roy Disney's comments come at a time when results appear to be improving. Double-digit jumps in operating income at all business segments except theme parks can't be bad.

Sadly, the same can't be said for $13.9 billion in debt. Nor for the fact that, to increase free cash flow, Disney announced in 2002 that it would "hold down" capital investment for the next five years. Per-share capital spending, which peaked at $1.13 in 1998, came in at $0.53 in 2002.

And capital spending is the life-blood of a business like Disney's. With theme parks representing 41% of Disney's 2002 operating income, shareholders should give a thought to Mr. Disney's claim that management is showing "timidity" in its investment in theme parks and building parks "on the cheap." Failure to invest for the future could turn today's good earnings news into yet another ugly plot twist.

At Friday's $23.09 close, Disney is within a dollar of its 2003 highs. The stock is up 42% for the year and has bounced nicely off its August 2002 low of $13.48. Still, that's little comfort to investors who got hooked on this soap back in May 2000 when the stock hit an all-time high of $43.88.

The Motley Fool's active Walt Disney discussion board has covered all of the issue Roy E. Disney is raising. Join W.D and the other board participants to discuss this news and other Disney-related topics. For a 30-day free trial to the discussion boards, click here.

W.D. Crotty is a Disney shareholder.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 500308, ~/Articles/ArticleHandler.aspx, 10/21/2016 10:33:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 hour ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
DIS $93.03 Up +1.00 +1.09%
Walt Disney CAPS Rating: *****