Disney shareholders sue over 'Pooh' dispute
By Ben Berkowitz
LOS ANGELES, Aug 16 (Reuters) - A group of Walt Disney Co. <DIS.N> shareholders has sued the company alleging it failed to disclose hundreds of millions of dollars in potential royalty payments in a dispute over "Winnie the Pooh," their attorneys said on Friday.
The suit, filed in federal court in Los Angeles, is seeking class-action status for shareholders who bought Disney stock between Aug. 15, 1997 and May 15 of this year.
"The lawsuit has no merit and we'll defend ourselves vigorously and are confident of the final outcome," Disney spokesman John Spelich told Reuters.
The suit claims Disney concealed from shareholders the potential for a huge royalty payout to family-owned Stephen Slesinger Inc., which licensed "Pooh" merchandise rights to Disney in 1961, then sued Disney in 1991, claiming royalties had been under-reported or not paid at all.
According to Friday's new suit, Disney should have reported the potential impact to shareholders sooner, but did not. The suit alleges Disney's failure to disclose was a deliberate misrepresentation to inflate Disney's stock price.
The wrangling between Disney and Slesinger has been widely reported for years but it was back in May, when the litigation most recently heated up, that Disney said in an SEC filing it might face the loss of hundreds of millions of dollars.
Slesinger's lawyers have valued those royalty payments as high as $200 million, an amount that Disney has disputed.
In June, the judge in the Pooh case ruled a court-ordered audit was fundamentally flawed and unfair to Stephen Slesinger Inc. The judge ordered a new audit by a new accountant. It could take up to a year to find an accountant acceptable to both sides.
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That order followed a well-publicized release of court documents in January which showed the judge fined Disney for destroying documents related to the case.
Businessman Stephen Slesinger received some North American marketing rights for the Pooh character in 1930 from its creator, A.A. Milne. His company licensed those rights to Disney in 1961, under a deal that gave him a percentage of worldwide sales of Pooh merchandise.
Those rights were renegotiated in 1983, just around the time home video sales began contributing to corporate profits for media and entertainment companies.
However, in 1991 Stephen Slesinger Inc. sued Disney, claiming it was owed $35 million or more in royalties for under-reported merchandise sales, as well as sales of video games and video cassettes.
Disney has denied under-reporting merchandise sales and has argued that things like video games are not covered by its agreements with Slesinger.
Since Disney mentioned the possible liability in the May 15 SEC filing, its stock has fallen about 36 percent, a fact the suit cites as the impact of the disclosure on Disney shares.
Disney, however, has been clobbered by several issues including low attendance at its theme parks and weak advertising sales at its ABC television network. Indeed, all media stocks have been hammered in recent months by their own issues and the wider downturn in financial markets.
In the same period, Viacom Inc. <VIA.N>, the least-impacted major media stock is down 16 percent. Vivendi Universal's <EAUG.PA> American Depositary Shares have lost 67 percent. AOL Time Warner Inc. <AOL.N> is off 32 percent and News Corp. Ltd.'s <NCP.AX> has seen its ADS's fall 25 percent.
Disney Chief Michael Eisner and Chief Financial Officer Thomas Staggs are named as defendants in the suit, which seeks compensatory damages but does not specify an amount.
08/16/02 17:29 |
