George Mannes

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Disney Fans Eyeing Iger in CEO Race

George Mannes

But the future of the company he leads remains in a fog.

By announcing his plans to step down from his CEO post in September 2006, Eisner officially confirmed what numerous Disney outsiders had already expected -- that he wouldn't be re-upped after the expiration of his current employment agreement with the entertainment conglomerate.

But the two-year gap between Friday's announcement and Eisner's departure date raises several unanswered questions for Disney. Some obvious ones are who will succeed Eisner, and how quickly Disney's board will move to name a successor.

But since a lot can happen at a company in two years -- it will encompass, for example, two more seasons in which Disney executives will try to pull ABC's struggling prime-time TV schedule out of the dumps -- it remains to be seen to what extent the succession plan will be influenced by future successes or disappointments at Disney's various operations.

And it also remains to be seen whether Disney's shareholders -- whose unhappiness with Disney's current regime knocked Eisner from his chairmanship perch earlier this year -- will be happy to have Eisner succeeded by the man who is believed to be Eisner's chosen successor: President and Chief Operating Officer Bob Iger.

Disney's shares -- which have stalled after a strong start to 2004 and are down 47% from their 2000 high -- rose 34 cents Friday to trade at $23.20.

Credit Suisse First Boston analyst William Drewry called Eisner's announcement a positive catalyst for the stock because it "gives visibility on what investors have viewed as the most vexing question -- succession plans."

"On succession, we think Bob Iger should be the front-runner at this point," Drewry writes in a Friday research note. "Whether the board looks at outside CEO candidates or acts pre-emptively will be seen shortly, but Mr. Eisner seems clearly in favor of Bob Iger as his successor. We believe that Bob Iger is the right choice for CEO at this point, and we would view that as a positive move by DIS."

Drewry has an outperform rating on Disney, and a 12-month target price of $40. CSFB has done investment banking services for Disney within the past year.

But one buy-sider who is shorting Disney's shares argues that Disney should look elsewhere, though it is unclear whether the company will do so. "This company seems like it needs to be reinvigorated with somebody from the outside," says the short-seller, who spoke on condition of anonymity.

Ideally, says the short-seller, the board should seek a CEO who can bring in a lot of "young, new, talented executives" -- someone, in other words, like Eisner was when he got the CEO post nearly two decades ago. Disney "should be able to attract the next great, hot executive," says the short-seller. "And for better or worse, the Street does not view Iger as that guy."

Just as a president's approval rating owes a lot to movement in unemployment figures, Iger's standing in investors' eyes will likely depend on the company's financial performance over the next two years.

From a summer 2002 low of $13.48, Disney's shares steadily climbed to a 2004 high of $28.41, thanks partly to a belief that the company had hit bottom and partly to Comcast's (CMCSA Quote) unsolicited and unsuccessful bid for Disney earlier this year.

Disney's supporters see the company's prospects continuing to improve, with Drewry, for one, calling investor bearishness "overdone and overplayed." Drewry points to a strong earnings turnaround at nearly every major division, and says that ABC is "a very good cost story" and is "pretty far down the list of important profit drivers for DIS."

But the short-seller is pessimistic about theme park attendance, saying it was weakening even before Florida's hurricane season hit. And Iger still has time to turn things around at ABC: "If we're looking back 12 months from now and saying, 'ABC had one hell of a turnaround,'" says the investor, maybe people will think better of Iger.