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RealTime IT News

When A Public Relations Nightmare Hits

You can offer all the due diligence you want, but if you're an investor there's absolutely no way to anticipate the kind of public relations nightmare that now burdens Disney and its high-profile Web operations.

Over the weekend it was reported that Patrick Naughton, an Infoseek executive vice president who headed the entertainment giant's Go Network online portal, had been arrested in Santa Monica, Calif., for allegedly using the Internet to set up a sex liaison with a 13-year-old girl.

I won't get into the sordid details here, but Disney moved quickly to control the damage. Infoseek fired Naughton and issued a statement saying the company was "shocked and disturbed" by the incident, an entirely reasonable reaction. And Infoseek President Harry Motro e-mailed employees, expressing shock and sadness about the arrest and informing them that Naughton "is no longer an employee."

(Ironically, in a story released today it was reported that Disney had dropped from fourth place to No. 21 in Fortune magazine's annual ranking of the most admired companies in the world.)

Disney announced in July it would acquire Infoseek -- it already owned nearly 40 percent -- and combine it with Go Network and other Web properties to create a tracking stock under the name Go.com.

While the courts are left to process this sad case -- Naughton is set to be arraigned Oct. 12 -- investors are right to wonder what impact it will have on the stock prices of the affected companies.

Through Monday afternoon, Infoseek (NASDAQ: SEEK) had dropped 4.4 percent to $27.50 per share, the third-worst stock performance of any ISDEX company so far that day (trailing only Verio and eBay, still falling in the wake Friday's news that Microsoft, Dell and others will launch a competing auction network). Disney (NYSE: DIS), meanwhile, was unchanged at $28.

In the long run, though, I don't expect any serious impact, unless a trial turns up embarrassing evidence and testimony that keeps it in the media spotlight. Even then, Disney and Infoseek can minimize the damage by being cooperative with authorities and open with shareholders, the press and employees.

So far the companies appear to be doing that.


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