Walt Disney Co. (DIS) investors and analysts sighed in relief Friday after Chief Executive Michael Eisner (search) said he would resign in 2006, although some worried his eye had turned toward grabbing the powerful chairman's post.

Eisner said he would step down when his contract ended in Sept. 2006, and Chairman George Mitchell (search) responded that the board would continue its search for a replacement, which is expected to include candidates inside and outside the company.

Burbank, Calif.-based Disney, owner of movie studios, theme parks and the ABC and ESPN television networks, is staging a financial recovery after recent years spent in a slump, but there are still some weak areas of the firm, such as its money-losing ABC broadcast operations.

After 20 years at the helm, Eisner had appeared poised for an exit after dissident shareholders emerged this past year arguing for his ouster. Investors were pleasantly surprised with Friday's confirmation that change was in store.

"It kind of defuses the situation," said James McGlynn, portfolio manager of the Summit Everest Fund which has a relatively small stake in Disney, about 55,000 shares. He said Disney dissidents would have less room to fight.

The attention of many Disney watchers shifted immedately to the board's next move. It must find a successor and grapple with Eisner's declared preference that President and Chief Operating Officer Robert Iger (search) take his place.

"It is important that the board make it clear it is an open search process," said Sanford Bernstein analyst Tom Wolzien, who said Eisner's announcement was positive. "It tells you that change is coming, and one of the criticisms of the company is that it has been insular," he said.

But dissidents were wary that Eisner was fooling them.

"Probably the most operable theory is Eisner will be chairman, Iger will be CEO, and nothing will change," said one supporter of Roy Disney (search) and Stanley Gold (search), who sparked a revolt against Eisner and have said they will probably nominate new directors at the company's next annual meeting.

State pension funds also appeared wary. They helped spur opposition to Eisner that led to a 45 percent vote against his re-election to the board at the annual meeting in March.

"Our primary concern continues to be the independence of the Disney board of directors," the funds from New York State, Ohio, North Carolina and Connecticut said in a statement.

The California Public Employees' Retirement System (search), the largest U.S. fund, welcomed the decision but added, Eisner's "presence on the board would prevent the company from making a clean break that is needed to restore investor confidence."

Corporate governance analysts said they expected Eisner to make just such a break, though.

"Investors I work with generally assume that best practice is for the CEO to leave the board and let the new CEO do the job," said Corporate Library analyst Nell Minow.

Pat McGurn of Institutional Shareholder Services agreed, and added the board's toughest issue would be to handle the candidacy of Bob Iger. But the momentum was the board's to lose, and dissidents would have to wait for a misstep.

"I think their level of support is going to depend on how well the board does going forward, starting today," he said.