Eyes on Eisner

For better or worse, the Michael Eisner era at Disney (NYSE: DIS  ) will be gradually coming to an end after the CEO flipped over a sandglass with two years' worth of granular dirt eager to trickle down.

By announcing that he will step down in September 2006 in a letter to fellow board members that was made public on Friday, Eisner should be able to pacify the growing group of critics that almost succeeded in voting him out of the company's board earlier this year.

How history reflects back on Eisner's 22 years of Mickey Mouse servitude remains to be seen. The first half of his tenure would have to be classified as one of the better turnaround jobs in corporate history. Along with Frank Wells, who joined him as president, and Jeffrey Katzenberg heading up the feature animation studio, Disney experienced a renaissance through the late 1980s and most of the 1990s as the company's full-length animated flicks flourished and its theme parks recovered by introducing breakthrough attractions to win over the jaded tourist. No matter what harsh words one may have for Eisner -- and I'm sure that many of you do -- he was an invaluable piece of a team that helped save a company on the brink of being acquired by raiders and broken up piecemeal.

Yet after the death of Wells and Katzenberg's departure, the company too proved its mortality. The last few years have seen Disney's ABC network fall from first to fourth in key target audiences, and attendance at Disney's theme parks -- particularly its two newest stateside gated attractions -- has struggled. Its in-house animated features have suffered at the box office, and its once-thriving Disney Store chain is in the process of being gobbled up by rival rug-rat mallrat Children's Place (Nasdaq: PLCE  ) .

So what kind of legacy will Eisner ultimately leave? These next two years will be telling. In Eisner's letter last week he alluded to great strides that the company has made in growing. Disney is indeed much larger today than it was when Eisner took over, though large chunks of that growth must be discounted as hefty acquisitions and stock option grants have diluted the 1984 shareholders. At least they are still comfortably ahead. Folks who bought into the company five years ago are sporting a loss on paper.

Eisner justifies the acquisition of Capital Cities/ABC, pegging its analyst value as high as $53.5 billion, though that's a bit delusional. At best, it is not much of a compliment when all of Disney is being valued at only $48 billion by the more efficient stock market (or $57 billion in enterprise value, once you account for the company's leveraged ways). The fact that Comcast (Nasdaq: CMCSA  ) wanted to buy the company at a discount to where the shares were trading just four years ago is also insulting to the current regime's ability to maximize shareholder value.

But 2005 will be interesting as the domestic theme parks are prettying themselves up for a celebratory year that should come with a spike in attendance. ABC really has nowhere else to go but up from here in the new fall season. Yes, the company's lucrative pairing with Stock Advisor recommendation Pixar (Nasdaq: PIXR  ) will be history come 2006, but at least Disney gets to keep the kids, and it's already hooked up with smaller computer-rendering specialists to attempt to fill the void. So it's been two decades of feast and famine. Now it's time to see what the last two years bring for dessert.

Who will take his place? Come back on Friday. I will handicap the race for Disney's next CEO by taking a look at the pros and cons of the more likely -- and some unlikely -- suitors.

Were you happy to see Michael Eisner announce that he would be stepping down in 2006? How would you value his performance over the past 20 years? Who do you think should lead the company after he leaves? All this and more in the Disney discussion board. Only on Fool.com.

Longtime Fool contributor Rick Munarriz has been to all six of Disney's domestic parks this year. He hasn't always left impressed. He owns shares in Disney and Pixar.


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