Disney was in trouble.
In order to scare away corporate raider Saul Steinberg from a hostile takeover attempt,
they spent $200 million in newly issued Disney stock to acquire Arvida, a real estate company
they honestly didn’t need.
The hope was that Steinberg’s investment in Disney would be diluted enough to make
it not worth his while anymore.
Instead, he used the move as justification to go all-in on the takeover attempt, pointing
to the acquisition as the perfect example of Disney’s poor management.
Everybody knew he was a corporate raider preparing to make a quick buck off of a company that
was struggling, but he tried to spin it as him being the benevolent Wall Street investor
who was going to save Disney from itself, regardless of whether Disney wanted the help or not.
Disney had to act fast.
Disney began to scramble for a solution, and with time running out, they became more open
to different ideas.
One that they briefly considered was merging with another large company that was also a
potential takeover target, figuring that once combined, they’d be untouchable.
They held discussions with the Bally Manufacturing Corporation which was known for their pinball
machines and, at that point, their new Atlantic City casino.
They also spoke with Binney and Smith, famous for their Crayola crayons.
In both cases the talks were short and uneventful, with all parties admitting that they were
a bad fit for each other.
However another name that was thrown around did manage to pique Disney’s interest: Gibson
Greetings, the greeting card company.
Gibson Greetings dates back to 1850 when a man named George Gibson emigrated over to
the United States from Scotland.
Back then Gibson wasn’t in the greeting card business as much as they were in the
lithography business, printing everything from stocks and bonds to business cards and checks.
Over the following 130 years the company would grow and expand to the now popular pastime
of greeting cards, and they would shift from an independent company to a subsidiary, and
then back to an independent company again in 1983.
Up until that point Disney was licensing out their characters to third-party companies
like Hallmark.
It wasn’t a bad deal, but it meant less revenue since they were splitting it with
their partner.
Furthermore, it meant less revenue because Hallmark had more incentive to focus on products
with copyrights they owned completely, rather than the products using characters they’d
need to share the revenues with.
It was the common pro and con of licensing.
In weighing the idea of buying Gibson, they considered that the increased visibility that
plastering their characters all over greeting cards would result in would, in-turn, benefit
every other branch of the company, from products to resorts to films.
As Disney grew excited at the idea of strengthening their products division with Gibson, Gibson
was growing excited at the prospect of having access to Disney’s treasure trove of IP.
They wouldn’t be independent any longer, but they’d never be short of characters
or ideas to work with.
At the very least it was a better fit than Arvida and Disney, and perhaps that’s why
talks of the purchase moved that much faster.
Just three days after the initial idea of acquiring Gibson surfaced, Disney met with
the company and began to talk price.
Similar to Arvida, the acquisition would be an all-stock purchase, further diluting Steinberg’s
stake in Disney.
Agreeing on a two for one stock swap, Disney was prepared to offer $307 million in Disney
shares for the greeting card company.
It was over $100 million more than what they paid for Arvida, and the dust from that acquisition
hadn’t even settled yet.
Meanwhile in New York City, Saul Steinberg was preparing his takeover attempt.
Part of that preparation included finding other like-minded investors who might be willing
to chip-in on the takeover in return for pieces of the company or a simple financial return
on investment.
A lawyer named Stanley Gold was meeting with Reliance Holdings, Steinberg’s company,
to talk about a potential deal.
The client that Gold represented was interested in acquiring Disney’s studio as well as
all of Disney’s merchandising rights, and that client was willing to pay $350 million for it.
Steinberg felt that the offer was far too low, considering the value of what that client
wanted, but promised that he’d entertain the idea.
After all there might be value in the partnership beyond just the money.
Because, you see, Stanley Gold’s client was Roy Disney.
Roy had previously toyed around with the idea of attempting a leveraged buyout of Walt Disney
Productions on his own, but had found that it would be prohibitively expensive and would
require selling off at least one of the two Disney resorts.
He couldn’t bring himself to break up the company just to take it over.
But with the Arvida acquisition and Steinberg’s renewed motivation to take it over himself,
perhaps Roy felt that buying into that takeover would be making the best out of a bad situation.
The company would still get split up, but he would at least get control of the studio
and watch over what he considered the entire foundation of the company’s legacy.
At the same time that Roy was offering to buy into Steinberg’s takeover attempt, Disney
was looking for a way to bring Roy back into the fold at the company.
Having a vocal critic, one whose last name was Disney no less, was not doing them any
favors, and perhaps getting him to return would help bring back some stability.
Simply put, Disney wanted to know what it would take for Roy to return to the Disney board.
Roy, worried that he would once again be a lone opinion in a room of board members against
him, made the answer just as simple: He wanted multiple seats at the table so he could bring
in additional board members who would back him up in future matters.
Disney didn’t agree right away, but they agreed to consider it.
Roy, entertaining both sides of the pending takeover battle, sat back and waited.
Shortly after that Disney announced the plans for the acquisition of Gibson Greetings, and
as expected, nobody was happy.
The purchase would dilute Steinberg’s stake, but then again it would also dilute everybody’s
stake, including people like Roy and the newest major shareholders of the company, the Bass Brothers.
Not to mention, it once again failed at scaring Steinberg away, who stated that this second
acquisition killed any chance of him stepping down.
On Friday June 8th Saul Steinberg formed a shell company called the MM Acquisition Corporation.
The MM stood for Mickey Mouse.
The company would collectively pool the investments that Steinberg gathered to buy Walt Disney Productions.
Kirk Kerkorian of MGM/United Artists pledged $75 million in return for the option to buy
Disney’s studio, movie library, and the Disney channel for nearly $450 million.
That price tag all but assured that Roy Disney and his $350 million bid wasn’t going to
get a seat at the table.
Fisher Brothers Financial and Development Company, a real estate developer also pledged
$75 million in return for the option to buy or lease as much as 15,000 acres of Disney
World’s undeveloped land.
Reliance would keep the theme parks and character rights.
The group was also comprised of various other smaller and larger investors, including another
corporate raider by the name of Irwin Jacobs, who committed $35 million to the takeover.
Maleficent: Now shall you deal with me, oh Prince and all the powers of hell!
That same day, the MM Acquisition Corporation announced their tender offer to buy Disney
stock for $67.50 a share.
Disney was out of time.
By that Monday morning, if the larger institutional investors who owned big portions of Disney
stock accepted Steinberg’s offer, which they were likely to do, he’d quickly gain
the 51% of the company he needed to take it over.
Disney contemplated two final desperate measures that weekend.
The first was a self-tender.
The concept of the self-tender is that Disney would wait until Steinberg purchased the 49%
of the company that he was initially gunning for, before tipping over to 51%.
At that point, Disney would then offer a higher price to buy out and lock up the remaining
51% of the company.
To pay for such an expensive move, they’d completely leverage their line of credit.
As a result, Steinberg would end up the largest and only outside shareholder of a company that
was then riddled with a projected two billion dollars of debt.
It’s for this reason that the self-tender was called the poison pill option.
Disney would, in a sense, defeat Steinberg, but they’d be crippling themselves in the process.
The second final measure was to do the one thing they were advised against doing from
the very beginning, which was to pay Steinberg greenmail to go away.
It would hurt Disney’s stock, and as a result their major investors, including Roy and the
Bass brothers.
It would also open up the possibility of another raider coming right along to try their own takeover.
But at the very least, Disney would survive to live another day.
Disney began to prepare both options for their final showdown with Saul Steinberg.
At the end of the day, the idea of the self-tender was too destructive to go through with.
Former CEO, Card Walker, called the idea un-Disney-like and unethical.
So on Monday June 11th 1984, Disney’s board would vote to approve the buyback of Saul
Steinberg’s Disney shares.
After a short negotiation, Disney would pay Reliance $297 million for his shares in the company.
To add insult to injury, they would also pay Steinberg an additional $28 million to cover
all of the expenses Steinberg incurred during the takeover attempt.
Saul, on the stock premium, would turn a profit of $31.7 million, and all he had to do was
look threatening to Disney.
It was a blow to their stock price, their reputation, and their standing with other
shareholders, but Disney was finally free from Saul Steinberg.
Left licking their wounds after the Steinberg debacle, Disney turned their focus towards
trying to get Roy Disney back onto the Disney board.
Negotiations went back and forth, but they eventually settled on two demands from Roy.
The first, similar to the initial meeting, was for three seats at the Disney board, with
Roy taking the role of vice-chairman.
The second condition was that both Donn Tatum and Card Walker had to resign from
their role in Disney’s executive committee, which was a management group that occasionally
met to discuss the running of the company.
He wanted to send a message with his return, that not only was he coming back to play a
significant role in the future of Walt Disney Productions, but that the “What would Walt
do” era that Walker and Tatum championed was finally over.
The board reluctantly agreed.
Roy would return to the board along with Stanley Gold, his lawyer, and Peter Daily, Roy’s
brother-in-law.
Roy Disney was back under the Disney umbrella, and he was ready to make some changes.
First up: getting rid of this overpriced greeting card acquisition.
Roy and Sid Bass, as two of the largest individual shareholders of the company, were understandably
against the acquisition because it would dilute their ownership.
Furthermore, with Steinberg out of the picture, it just wasn’t necessary anymore.
To round it all out, because the greenmail payment had hurt Disney’s stock, the number
of shares Disney would have to give Gibson for the deal increased to the tune of over
a million extra shares, which in turn upset shareholders even more.
Facing a list of reasons for ending it, Disney’s chairman, Ray Watson, told Gibson they were
terminating the deal.
Watson informed Roy and Sid, who were thrilled.
Then Ron Miller, Disney’s CEO, decided that if the deal was altered it could still work.
Changing the terms of the sale to a stock and cash offer, the deal was back on.
Watson informed Roy and Sid, who were not thrilled.
At that same time, Disney’s stock was hurting.
Between the planned acquisition of Gibson Greetings, and the greenmail paid to Saul
Steinberg, Disney was trading at $47, which was even less than what it was trading at
when Saul began his takeover attempt that March.
And this time, there was no question as to whether a company like Disney would cave to greenmail.
After all, they just did.
That’s when Irwin Jacobs, who earlier had pledged to help Steinberg with his takeover,
started buying shares in Disney.