Institutional investors seem to be buying more stock in Walt Disney Co., or at least holding on to what they own, even though the chairman of Disney's film-making subsidiary resigned.
The consensus of Disney's largest shareholders and analysts is that Jeffrey Katzenberg's departure was important - and expected - but that the company's management and creative talent runs deep.
Indeed, in the days following the announcement, the stock hovered around $42 a share, as it did in the weeks before Mr. Katzenberg's resignation, slightly underperforming the rising market.
By the end of the week, Disney shares had dropped a few cents more, probably in response to news that the share price of Euro Disney S.C.A. - the French Disney theme park 49%-owned by the American company - dropped 12% in value to about $1.45, a record low.
Investors in the parent company, in general, remained optimistic about Disney.
"The important thing is there were some management people (there) to step up and fill the position," said Tim Drake, senior research analyst with Banc One Investment Advisors Corp., Indianapolis, which owns about 950,000 shares of the Burbank, Calif-based Disney.
"There shouldn't be any interruption to the flow of production," said Mr. Drake, who is in a hold position on the stock.
Joe Roth, chairman of Disney affiliate Caravan Pictures, was selected to replace Mr. Katzenberg.
Disney's stock has been trading below the 365-day high of 485/8 it attained in March. Most investors attributed the drop in the stock's price to the performance of its theme park business, which had been off domestically and abroad. Mr. Katzenberg's resignation already was factored into the price, they contend.
According to published reports, Mr. Katzenberg resigned when he wasn't named president of the parent company, following the death earlier this year of Frank Wells. As chairman of the film unit, Mr. Katzenberg was the leader of the company's highest revenue-producing unit.
"The Street has accepted the fact that Katzenberg was good, but without Wells they need a bean counter," said Clifford Mpare, senior vice president, director of investments with NCM Capital Management, Durham, N.C., which owns more than 660,000 shares and is still a buyer.
Mr. Mpare continues to be "favorably disposed" to Disney because the company's strategic direction remains intact, in spite of the death of Mr. Wells, the illness of Michael Eisner and Mr. Katzenberg's resignation."The chairman of Disney (Mr. Eisner) is a creative thinker," said Mr. Mpare. "So is Katzenberg. You don't want two creative thinkers in the top spots."
Mr. Katzenberg won't be sorely missed, said Mr. Mpare, because there is a perception among analysts that Roy Disney, who leads the animation group, is the brainchild behind many of the studio's animated movie hits like "Beauty and the Beast," "Aladdin" and "The Lion King."
"It (Lion King) had his (Katzenberg's) signature, but Disney is a programming powerhouse," said Terry McLaughlin, managing director of Ashland Management Inc., New York, which owns 835,000 shares of Disney and is a longtime holder and continued buyer of the stock.
If and when Disney does acquire a television network, as it is rumored to be interested in, Mr. McLaughlin believes it will be because management thinks the deal is good. Disney already owns one TV station in Southern California and a premium cable network.
"They are shrewd dealmakers and they will do a deal to benefit shareholders," said Mr. McLaughlin. "That's what they have done all along.
"They won't do a deal because it's popular," he said. "They will do one that makes sense."
"Disney had a series of major hits that was unprecedented, and he was important to that process," said James Wineland, vice president and portfolio manager with Waddell & Reed Asset Management Co., Shawnee Mission, Kan. In total, the company's portfolio managers own more than 2 million shares of Disney.
"But they are full of creative people," said Mr. Wineland, who said he is inclined to add to his position. "I'm not so sure they are crippled and are unable to produce movies" without Mr. Katzenberg.
"The real issue is to what degree did Katzenberg's involvement make or break a movie like 'The Lion King,'*" said Brian Stansky, vice president with T. Rowe Price Associates, Baltimore, a holder of more than 980,000 shares.
Mr. Stansky declined to say if he is a buyer, but said Disney is a good company.
"It is important, but not earth-shattering," Mr. Stansky said about Mr. Katzenberg's departure.
More important than Mr. Katzenberg's resignation is the health of Mr. Eisner, who underwent triple-bypass surgery in July, and the performance of Disney's theme parks, said Andrew Massie Jr., chief investment officer with Warburg Pincus Counsellors, New York, which owns 1.2 million shares.
"The company is coming to a point where they have to make major strategic decisions," said Mr. Massie. "Do they want to merge with a (television) network (Disney is rumored to be a suitor for CBS); how to get their theme park business moving again.
"It (theme parks) has been stagnant in the last three to four years," said Mr. Massie. Theme parks are more important to Disney's bottom line because their earnings are more consistent than movies, according to Mr. Massie. "The movie business is more hit or miss," he said.
According to analysts, DisneyWorld, Orlando, Fla., is a traditional tourist destination for Europeans, but a slew of tourist murders last year has left Europeans with the perception that Florida is dangerous.
Also, the recession in Europe has kept tourists home.
In Europe, Euro Disney S.C.A. has been a bust, although Disney recently reduced the debt on the park and infused equity capital.
"They (management) have done some minor things, nothing dramatic" about the performance of the theme parks, said Mr. Massie.
Disney executives appear to be taking the attitude that the decline in tourists domestically is due to the bad publicity in Florida and the weak European economy, said Mr. Massie.
He noted, however, that over time, the weakness of the dollar should result in increased tourist visits to Disney's U.S. theme parks, yet there has been no indication of that occurring.
