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Chemistry Made Talks Quick, Quiet


Michael Eisner had been reluctant even to make the trip.

The destination was Sun Valley, Ida., and the occasion was investment banker Herbert Allen's annual entertainment industry conference. One year earlier, Eisner, the Walt Disney Co. chairman, had abruptly departed the same conference after suffering chest pains and returned to Los Angeles for emergency heart-bypass surgery.

This time, however, Eisner's attendance led to something quite different: Because of a chance meeting at the Allen & Co. Sun Valley conference, the $19-billion deal to merge Disney and Capital Cities/ABC was born.

For on Thursday, July 13, Eisner "bumped into" Cap Cities shareholder Warren Buffett in the bracing noontime air of the Idaho resort.

"I blurted out, 'You wouldn't be interested in selling the company for cash, would you?' "

As it happened, Buffett was on his way to see Capital Cities Chairman Thomas S. Murphy.

"He said he was going right then to have a picnic with Murphy. He walked me 100 yards down the road to [Murphy's] car, and we discussed it. That was the beginning of the negotiations."

Chemistry Was the Key

The coming together of these two major entertainment companies in the largest merger in Hollywood history differs radically from the normal life cycle of corporate mergers.

Where many such deals are preceded by days or weeks of increasingly detailed rumors, the Disney-Cap Cities deal was done without a single word leaking out.

Where most deals involve squadrons of high-priced investment bankers and lawyers, in this case the Wall Street army was brought in at the very last minute--virtually to watch the papers get signed.

And where most such deals take months to consummate, this mega-marriage was essentially done in less than a week.

The key, according to participants and industry observers, was the chemistry between the two principals: Eisner and Murphy. The two chairmen are old acquaintances and their companies have a long relationship dating back to 1953, when ABC's chairman, Leonard Goldenson, lent Walt Disney more than $10 million he needed to build Disneyland. (In return he extracted Disney's promise to produce a one-hour television show for ABC every week.)

Over the years Disney, ABC, and Capital Cities--once a small owner of television stations and newspapers--have had many discussions about merging. In the mid-1980s Eisner, Disney General Counsel Sanford M. Litvack and ABC Chairman Leonard Goldenson tried to do a deal; instead, ABC was sold to Cap Cities. Three years ago, Eisner recalls, there were "serious discussions" involving him, Murphy and top executives from both sides in New York.

"We wanted to pay with stock and they wanted cash, or maybe it was the other way around," Eisner says. "In any case, it didn't work."

The two sides tried again about six months ago. Then, again, "I wasn't aggressive enough financially and Tom wasn't aggressive enough either," Eisner says.

But by this summer things had changed. Both companies had come through a bad patch financially, but their troubles seemed to be receding--Disneyland Paris appeared to be on the most solid financial footing since its opening, and the value of Cap Cities' television holdings was once again being recognized by Wall Street.

"This time both companies have no operating problems," Eisner says. "No divisions are in trouble, we're both doing well, and it seemed like the right time."

For all that, Eisner says doing a Cap Cities/ABC deal was far from his mind when he arrived at Sun Valley.

For one thing, he couldn't forget his heart surgery.

"Given what happened last year, I was reluctant even to go," he says. Trying to take things easy, he scheduled only a one-day visit to coincide with Disney's Thursday-morning presentation to financial analysts.

Upon his arrival on Wednesday, July 12, he had convened his four-man brain trust for their regular five-year planning meeting. As the session started the Disney executives suggested: Isn't it time to do a deal?

As Eisner recalls things, he had opened the meeting by noting that Disney had reached the midyear point with very little debt. Interest rates were so low that borrowing was once again attractive. Money was loose and the atmosphere for a strategic move could not be better.

"I was really getting quite compulsive about taking Disney into the next century and beyond," Eisner said in an interview Monday with The Times.

In the executives' hands was a list of five potential acquisition candidates, and at the top of that list: Capital Cities/ABC.

The next morning, after the Disney presentation, Eisner prepared to leave. He left his condo and walked up the street to say goodby to Allen, his host. There, in front of the Allen home, he saw Warren Buffett. (As Murphy recalls it, he was on his way, not to a picnic, but to play golf with the wife of Microsoft Chairman Bill Gates.) On the spot, Eisner, Buffett and Murphy opened negotiations.

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