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THE MORNING BUZZ: Trouble in Bearadise

27 Aug, 2002 By: Holly J. Wagner

As if the Walt Disney Co. wasn't having enough trouble trying to hang onto its license for Winnie-the-Pooh products and stay afloat in the stock market, the two issues have at last converged.

At least two law firms have announced shareholder class action lawsuits against Disney, CEO Michael Eisner and CFO Thomas Staggs, complaining they hid a lawsuit over the hunny pot of money Pooh rakes in (estimated to be as high as $6 billion a year) from shareholders, who lost money when the case came to light.

The case was filed in 1991 but Disney didn't disclose it in filings with the Securities and Exchange Commission until May 15 of this year. A Disney spokeswoman said at the time that the company didn't think it was important to disclose until a judge set a trial date, which didn't happen until early this year.

But Disney's share price has skidded down 46 percent since the disclosure and the shareholders are blaming the dispute. They contend the loss of Pooh's income, which some sources say is as much as a quarter of the company's annual bottom line, would just be too much to bear. They also contend they might have made different choices if Disney had told the truth earlier on.

That seems to be a common theme in a case in which a judge fined Disney's lawyers $90,000 a year ago for shredding dozens of boxes of documents that might have helped sort out how much Pooh is due.

The case is scheduled for trial – no doubt one Disney execs would prefer to avoid –- in February. So far it's looking like the script for a Celebrity Death Match episode feature a chubby bear and a mouse that is looking scrawnier by the day.

In the wake of the shareholder filings, one of my friends, a Disney shareholder, has been complaining that it's time for a change in the big offices at the Mouse House. Observers have been speculating as much since the company held its annual meeting in the frozen wastelands of Connecticut in January, a choice my vested friend blasted then as a way to hide from the bulk of investors. The problem, he said, is that paying out executives would cost more than keeping them. Pooh, my friend observed, may change that.

Funny, I seem to remember Pooh being afraid of the dark.

I don't have stock in Disney. I still like the animation that took the company to top, even if some of its more recent efforts have left me nonplussed. But from what we can see in the numbers the company's overall performance has been slipping for some time and, that may not be the worst of it. If recent litigation is any indicator, investors should me much more worried about what they can't see.

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