heir not amused by CEOs
By Al Lewis, Staff Columnist
Friday, August 18, 2006
As CEOs go, Ken Denman is a marked man.
Roy E. Disney -- nephew of the late Walt Disney - wants him
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
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
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
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
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
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
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
Denman says his board stands behind him. Shamrock,
meanwhile, says it will wage a proxy battle to get what it
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
Al Lewis' column appears
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