Company Town: Disney’s Mega-Merger : The ABCs of a Deal : TALK OF THE TOWN : Dream Team’s Not-So-Dreamy Predicament With Disney

Hollywood, Wall Street and the entertainment media at large were caught napping Monday morning when Disney honcho Michael Eisner and Capital Cities/ABC Chairman Thomas S. Murphy appeared on ABC’s “Good Morning America” and dropped the bombshell that they had created the biggest media merger in history.

Never in recent memory has there been a better-kept secret in an industry where media leaks are as much a part of the landscape as the multibillion-dollar mega-deals themselves.

While Monday’s announcement took the entire entertainment industry by surprise, none could have been more shocked--and perhaps more rattled by the news--than former Disney Studios Chairman Jeffrey Katzenberg and music mogul David Geffen.

Hollywood is abuzz about the irony that Disney’s purchase of ABC is Eisner’s ultimate thumbing of his nose at his foes Katzenberg and Geffen, whose new company DreamWorks had made an unprecedented joint venture deal with ABC.

“It’s their [Katzenberg and Geffen’s] worst nightmare,” said one industry source.

Another highly placed source noted, “We’re all laughing about the fact that you have to be really careful not to piss anyone off, because you never know who your next boss is going to be.”

Katzenberg’s close 19-year relationship with Eisner soured last year when the Disney chairman refused to name his longtime charge to the presidency of the company--a position the late Frank Wells had held and that Katzenberg coveted.

Katzenberg left Disney and went on to create the self-proclaimed “Dream Team” with Geffen and director Steven Spielberg, forming their own well-capitalized entertainment company.

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Geffen immediately rallied around Katzenberg--his closest friend--and has been outwardly hostile toward Eisner ever since.

In a recent Los Angeles magazine article, Geffen let loose on Eisner in a public forum, making a number of incendiary comments. Geffen, who claims he granted the interview about Eisner to Los Angeles magazine editor Robert Sam Anson for a book Anson is writing on Disney, not for an article, nevertheless was quoted as saying: “Michael is a liar. And anyone who has dealt with him, genuinely dealt with him, knows he’s a liar.”

While it was thought at the time the article came out last month that Geffen’s remarks would have no immediate impact since he and Eisner were unlikely to be in business together, that all changed Monday morning.

Another glaring irony is that Los Angeles magazine is owned by Capital Cities/ABC, which is now owned by you know who.

This could spell bad news for editor Anson, who has now written two highly critical pieces on Eisner. Three months before the Geffen piece ran in July, Anson targeted Eisner in an article in the weekly newspaper the New York Observer, in which he called the Disney boss “Captain Queeg” and accused him of “erratic removed-from-reality decision making” when it came to the breakup of Eisner’s longtime management team of Katzenberg and former TV chief Rich Frank.

All this aside, it will be interesting to see what will play out between Eisner and the DreamWorks founders.

A knowledgeable source said DreamWorks has a contract clause in its deal with ABC that grants it the right to terminate the arrangement should there be a change of ownership control.

At the moment, sources close to the Dream Team say the partners aren’t considering exercising that option. Rather, they will wait to see how things turn out and will make an appropriate decision if and when there is a need for it.

But an industry source noted: Geffen and Katzenberg “love this stuff. They’ll now scheme on how to get out of their deal.”

DreamWorks’ first TV series, Gary David Goldberg’s “Champs,” is still slotted to air during the midseason on ABC.

DreamWorks has enjoyed a great relationship with Murphy, ABC President Robert Iger and other ABC executives since making their 50-50 joint venture deal in November. The venture, into which ABC and DreamWorks are each expected to pump about $100 million to produce TV programs, miniseries and TV movies, marks the first time a broadcast network intends to share advertising income and other revenue with an outside producer.

Eisner was said to be apoplectic when ABC made the deal with DreamWorks, and for months after DreamWorks’ formation the gossip was that Eisner was going to try everything in his power to trip up the fledgling studio.

As far as ABC is now concerned, sources suggested that the ball is really in Eisner’s court. “He has to resolve his problems with Jeffrey and David either by terminating the [DreamWorks/ABC] deal or by patching things up.”

While that may be true, a number of industry observers said the DreamWorks/ABC situation is hardly a big concern right now to Eisner, who as of Monday became by far the most powerful player in the entertainment industry.

“The last thing Michael is thinking about is how important DreamWorks is to ABC,” said a rival studio head. “They are insignificant in the scheme of this deal.”

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But contractual issues between Katzenberg and Disney have yet to be worked out. Katzenberg has been threatening to take legal action against Eisner over money he feels he is owed from his years at Disney.

It’s been reported that part of Katzenberg’s case involves a memo from Wells assuring Katzenberg a share of the proceeds from such movies as “The Lion King” and “Aladdin.” Disney’s position is that Katzenberg’s contract doesn’t jibe with the language of the memo.