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The Association of U S West Retirees
 

 

 

Disney heir not amused by CEOs
By Al Lewis, Staff Columnist
Denver Post
Friday, August 18, 2006


As CEOs go, Ken Denman is a marked man.

Roy E. Disney -- nephew of the late Walt Disney - wants him fired.

Denman, 48, lives in suburban Denver and is a former US West executive.  He now runs iPass Inc., a San Jose, Calif.- based company that provides secure Internet connections for businesses.

IPass is valued at about $300 million on the stock market, but its stock has nose-dived 84 percent from its high after an initial public stock offering in 2003.

This fact alone makes Denman an easy target for Disney, a billionaire heir of the Magic Kingdom.  In 2004, Roy Disney forced out Michael Eisner, the grossly overpaid and once-entrenched ham at the Walt Disney Co., a company worth $62 billion.

Expanding on that success, Roy Disney started an activist investment fund, which is largely funded by public pension plans upset with lackluster performance of CEOs.  If you are a CEO and happen to notice that Disney's Shamrock Activist Value Fund has purchased stock in your company, start packing up the office.

"They've made it clear that they shot Eisner ... and that they can dance on my grave anytime they want," Denman said.

In January, Shamrock forced the $465 million sale of Longmont-based telecommunications company Intrado.  Shamrock now owns more than 14 percent of iPass' stock and wants changes there too.

On Monday, Disney's longtime sidekick Stanley Gold fired off a letter to iPass' lead board director, John Beletic.

"You and your board colleagues ... appear to be disengaged and unwilling to demonstrate the courage to hold management accountable," it said.  "We have lost confidence in the board's and the CEO's ability to steward our assets effectively."

The letter also noted shrinking profit margins and a negative return on capital.

"Ken doesn't have the leadership skills to manage a smaller, entrepreneurial, scrappy, shareholder-focused business," Shamrock managing director Michael McConnell told me in an interview.  "This is not surprising given his long history at a larger, public utility like US West."

Denman also ran a startup based in Arapahoe County called AuraServ Communications, which folded in the telecom bust.

Shamrock wants more than just Denman out.  It wants a seat on iPass' board, more aggressive cost-cutting and $70 million of the company's cash reserves distributed to shareholders in a stock repurchase plan or an extraordinary dividend.

That would put about $9.8 million in Shamrock's hands, with the rest going to remaining shareholders.

IPass' fortunes turned as customers increasingly abandoned dial-up connections in favor of broadband and wireless connections.  Denman said the company couldn't log revenue from these new technologies as fast as it lost them to dial-up.

But Denman said the tide is turning back:  "We have navigated phenomenally treacherous waters here.  Many companies go through this kind of a transition and don't maintain the same general health that we have."

Shamrock's investment strategy is to seek out companies that can benefit from a swift kick that often dislodges underperforming management.  This strategy has grown increasingly popular in the post-Enron era.  Activist hedge funds now marshal more than $100 billion in assets, according to some reports.  And we're increasingly seeing more examples.

Earlier this week, New York-based Trian Group announced that it believes it has won seats on H.J. Heinz Co.'s board.

With stock values down, there's money to be made reforming, but there is a fine line between reforming and raiding.

In the 1980s, Roy Disney and Gold did deals with junk bond banker Drexel Burnham Lambert and renowned corporate raider T. Boone Pickens.  Deals like these were diabolical and self-serving, but they would not have been possible without bumbling managers.

Denman says his board stands behind him.  Shamrock, meanwhile, says it will wage a proxy battle to get what it wants.

Stay tuned.  Maybe Roy Disney and Gold are true reformers.  Maybe they do have a better plan than Denman for iPass.  Or maybe they took too many trips on that ride, Pirates of the Caribbean.

Al Lewis' column appears Sundays, Tuesdays and Fridays. Respond to Lewis at denverpostbloghouse.com/lewis, 303-820-1967 or alewis@denverpost.com.

http://www.denverpost.com/business/ci_4199073