Investor Nelson Peltz’s onslaught of the Walt Disney Co. and the prospect of a rare proxy fight for the media giant rocked the media world this week — a flurry of SEC filings over the past few days suggests There will be more fireworks.
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Activist investors’ demands for a seat on the company’s board and criticism of management have captured the full attention of Wall Street, already jittery about how returning CEO Bob Iger will turn things around. The prominent executive’s re-election bid as Disney’s CEO has already faced a series of challenges, some industry-wide and some self-inflicted.
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Peltz may not be a household name, at least not in the entertainment world, but he could play an important role in the direction of the company — provided, of course, he manages to convince other shareholders to vote him on to the board.
Activists tend to be brash, outspoken Wall Street veterans. Perhaps best known in media circles is Carl Icahn, who has been entangled with Time Warner and Lionsgate. Third Point hedge fund chief Daniel Loeb, who has come under fire from George Clooney amid his conflict with Sony, recently made a series of demands on former Disney CEO Bob Chapek, such as spinning off ESPN before eventually pulling back . Elliot Management, known for its personal touch, has called for the ouster of AT&T CEO John Stankey and his former boss, Randall Stephenson, a litany of grievances.
In contrast, Peltz’s goals are more straightforward, and he claims to support the current management. He and his investment firm, Trian Partners, aren’t competing with Iger’s CEO role or the company’s current configuration. Instead, they lament the company’s missteps and see themselves as offering “a fresh perspective to improve performance” given the strong asset portfolio.
On Wednesday, Trian launched the initial salvo in an overview titled “Restoring the Magic,” announcing that Peltz would run for a seat on Disney’s board against the company’s proposed list of directors, which includes new board chairman Mark Parker. Shareholders will vote on the directors at the annual meeting, usually held in March. Trian has since released a slew of follow-up information, including slides and a chronicle of his proposal and meetings with various Disney representatives. Because this is so closely related to Disney’s governance as a public company, the communiqué was filed with the SEC. Trian has also been pitching investors on a constantly updated website dedicated to turning Disney around, RestoreTheMagic.com. In a filing on Friday, it said it had received “numerous inquiries and expressions of support from shareholders”.
Disney has yet to release a proxy statement for its latest fiscal year, which ended in September. There it will set the date for the annual meeting and draw up its own list of directors and opposition candidates, as well as other proposals to vote on – both its own and those of outside shareholders, of which Trianon has few. It should be very eventful. They usually are: Last year, then-CEO Bob Chapek spoke out for the first time against Florida’s so-called “Don’t Talk Gay” bill, which was signed into law days later.
In addition to Trian, Iger still faces many challenges and changes. Chapek was abruptly ousted in November and succession issues are still ongoing. Iger has a two-year contract. The company will also name Parker, who is also Nike’s executive chairman, as its new chairman. He replaced Susan Arnold after Disney said she had served on the board for 15 years, the maximum term allowed by the company’s charter.
Trian seemed to be saying the quiet parts aloud. In an interview with CNBC, Peltz likened Disney to communist China and said its $71.3 billion acquisition of a majority stake in 21st Century Fox in 2019 has allowed the company to “get over it” financially , causing the dividend to be wiped out, a 57-year fixed asset. It is favored by many retail investors of the company. Disney (and others) canceled their dividends to conserve cash during the pandemic and have yet to recover.
Just before Christmas, Iger called Peltz to tell him that a virtual meeting was being arranged, but it was unlikely to take place before January 6 “because Mr. Iger was planning to sail his yacht off the coast of New Zealand.”
SEC filing
A poignant paragraph in an SEC filing details the full chronology from Trian’s perspective. The filing said Peltz spoke with Chapek last summer when he was still CEO, when he was critical of the company and expressed his desire to be on the board. The conversation was further complicated by Chapek’s ouster in the coming months and a looming deadline to add new board members to the vote before a shareholder vote. Just before Christmas, Iger called Peltz to tell him that a virtual meeting was being arranged, but it was unlikely to take place before January 6 “because Mr. Iger was planning to sail his yacht off the coast of New Zealand.”
Finally a meeting was held last week.
The Disney episode follows a familiar playbook for Peltz, whose boardroom activities have garnered considerable attention in the financial world since Trian was founded in 2005. He is currently the non-executive chairman of The Wendy’s Corp. and is a board member of Unilever and Madison Square Garden Sports Corp., the parent company of the New York Knicks and Rangers. Peltz, 80, who was born in Brooklyn, is a hockey fan, a friend of MSG Chief Executive James Dolan and a personal investor in MSG. Previous board appointments include Procter & Gamble, HJ Heinz and Sysco. Consumer goods, not media, are usually Peltz’s wheelhouse.
Trian owns a stake in Disney worth nearly $1 billion, but given the size of the media company, that means his stake is only about 1 percent. While the small stake and Peltz’s relative inexperience in media put off some on Wall Street, Trian countered that they were only seeking a board seat, and that Peltz’s consumer experience was as good as Disney’s vast portfolio of theme parks and merchandise. The footprints match.
Disney shares, which hit eight-year lows in recent weeks and have severely underperformed the S&P 500 and many media peers, initially responded well to Peltz’s uproar, rising more than 3 percent on Thursday. On Friday, however, they fell a little bit to close at $99.40.
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Given uncertainty in the theatrical film business, negative momentum in the pay-TV business, and other headwinds, Iger has his work cut out for him. While he moved quickly to undo some of Chapek’s moves, he was also the one who put Chapek in charge in the first place. Iger’s saga of being CEO from 2006 to 2020 remains unconvincing to many observers inside and outside of Burbank.
Wall Street analyst Michael Nathanson, who maintained a “buy” rating on Disney stock, wrote a note to clients on Thursday expressing support for Peltz’s intervention, though he hoped Iger would be allowed to carry out his plan.
“While we believe Trian is correct in identifying these issues, we believe that given the change in leadership, the company will act quickly to improve profitability,” he wrote.
“In our view, Disney’s underperformance relative to the S&P 500 is a combination of macro issues (such as slowing consumer spending and slowing advertising), pandemic impact from park closures, post-pandemic structural headwinds (such as accelerated combination of cord-cutting and lower box office attendance). A few self-defeating moves also include the acquisition of 21st Century Fox, the addition of Disney+ TAM [total available market] The end of 2020 (which has forced the company to spend more on a broader content offering), and the decision to continue strengthening Indian cricket rights and ESPN non-prime sports. “
Nathanson declared himself generally “optimistic” that Iger would make “difficult decisions consistent with Trian’s goals.” In the long run, then, Disney’s profitability “will now be higher than it was under previous leadership.”
Disney has never faced such shareholder dissent from the start. Former Walt Disney Company directors Roy E. Disney and Stanley Gold fought at the 2004 annual meeting in an attempt to oust then-CEO Michael Eisner. Shareholders voted a shocking 45% no-confidence in Eisner at that meeting, and Eisner was stripped of his title of chairman. Disney and Gold also threatened to initiate a proxy fight at the next annual meeting for the opposition director’s seat, but later dropped it. ABC and Disney’s lifelong Iger eventually emerged from the turmoil to become the company’s CEO.
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