Ovitz Testifies, Accuses Eisner of Undercutting Him at Disney

Michael Ovitz (search), Walt Disney Co.'s former president, testified Tuesday that he was undercut a number of times by Disney Chief Executive Michael Eisner (search) as he tried to expand the entertainment giant's business.

Testifying in a high-profile shareholder lawsuit, Ovitz, a one-time top talent agent, said he wasn't allowed to pursue deals that would have expanded its music business, given Disney greater heft in book publishing or settle a dispute with Jeffrey Katzenberg (search).

"Michael had the final say on everything," Ovitz said of Eisner.

A group of shareholders is suing Ovitz, Eisner and various Disney directors over an estimated $140 million severance package paid to Ovitz when he left the company after 14 months.

The lawsuit, which has been in progress for more than seven years, claims Disney's (DIS) board failed in its fiscal responsibilities by not properly scrutinizing Ovitz's employment contract when he joined the company in 1995 and then granting him a non-fault termination entitled him to the massive severance package.

Ovitz sprinkled throughout his testimony the names of some the biggest figures in the entertainment business with whom he had dealings over the years, including Dustin Hoffman, Tom Cruise, Barry Levinson, Sidney Pollack and Steven Spielberg.

Dressed in navy-blue suit with a navy-blue tie and wearing eyeglasses, Ovitz said he had discussed working with Eisner many times in the 25 years they had known each other, but didn't agree to a deal until 1995. He said he told Eisner at the time that he expected a "steep learning curve" in his first year at the entertainment giant.

At the same time, Ovitz said he and Eisner shared a similar vision for reinventing Disney, in which Ovitz would explore an expansion of its creative businesses. Ovitz was hired as Eisner's second in command after Frank Wells, Disney's president and chief operating officer, died in a helicopter crash in 1994.

However, Ovitz said he encountered discord at Disney even before he officially began working at the company.

At a meeting at Eisner's home days before his hiring was announced, Sanford M. Litvack, Disney's chief of corporate operations, and Stephen F. Bollenbach, Disney's chief financial officer, told Ovitz they weren't reporting to him, Ovitz said.

Eisner suggested they would try to work out the situation over the next few months, Ovitz said. Eisner also suggested it might not be too late to back out of the deal, he said. Ovitz said he felt it was too late to return to Creative Artists Agency (search), the talent agency he founded.

Despite the setback, Ovitz said he tried to pursue a variety of ways to expand Disney's businesses.

Ovitz said he suggested to Eisner that Disney expand its Hollywood Record business by either bringing in known talent or acquiring another record label. He suggested offering a deal to pop star Janet Jackson, acquiring EMI or starting a joint venture with Sony. In each case, Eisner said no.

Ovitz also said he discussed the possibility of Disney acquiring a National Football League (search) franchise and building a theme park around it in downtown Los Angeles — ideas Disney later used in helping revitalize New York's Times Square around a theater it built there.

"Michael decided he didn't want to do it," Ovitz said.

At the same time, Ovitz said he suggested Disney expand its publishing business by offering book deals to best-selling authors Stephen King and Michael Crichton, as well as a deal to acquire Putnam Publishing, which would give Disney the rights to novels by Tom Clancy. Eisner also nixed those deals, Ovitz said.

Ovitz said he even had discussions with an attorney for Jeffrey Katzenberg, one of the founders of Dreamworks SKG, in an effort to settle an ongoing dispute after Katzenberg left Disney. Ovitz said he had tentatively reached a deal to settle the dispute for $85 million to $90 million, but didn't have the authority to pursue it.

He asked Eisner and Litvack to agree to the settlement. They said no and Disney later settled the suit for "north of $250 million," Ovitz said.

The trial began Wednesday in Delaware's Court of the Chancery, a specialized business court.

The prosecution has brought in expert witnesses who have testified, among other things, that Disney could have fired Ovitz for cause, and may have violated its own bylaws having the full terms of Ovitz's contract circulated only with two members of its compensation commission rather than the full board.

Another witness read aloud memos by Eisner that described Ovitz as a "psychopath" with a "character problem."

The defense has suggested that Ovitz's pay and severance package were reasonable considering that he was making as much as $20 million to $25 million a year as chairman of his talent agency.