Nelson Peltz’s broadside against the Walt Disney Co., and the prospect of a rare proxy fight at the media giant, stunned media circles this week — and a spate of SEC filings in recent days suggest plenty more fireworks are to come. come.
The activist investor’s demand for a seat on the company’s board and criticism of management have drawn the full attention of a Wall Street already tense about how returning CEO Bob Iger will save the ship. The famed exec’s encore as head of Disney already faces a series of challenges, some industry-wide, others self-inflicted.
Peltz isn’t much of a household name, at least not in the entertainment world (although his kids as an actor and entrepreneur have put him in the orbit of Beckham and Selena Gomez). Still, he could play an important role in the company’s direction — especially if he manages to convince other shareholders to vote him on the board.
Activists are generally brash, outspoken veterans of the street, confident that their vision trumps management’s. Perhaps best known in media circles is Carl Icahn, who tangled with Time Warner and Lionsgate. Daniel Loeb, Third Point’s chief of hedge funds, came under fire from George Clooney during a clash with Sony and, more recently, provided former Disney CEO Bob Chapek with a list of demands, such as spun off ESPN before eventually backing down. Elliot Management has been known to get personal and demand the impeachment of AT&T chief John Stankey and his former boss, Randall Stephenson, on top of a list of grievances.
In comparison, Peltz’s goals are simpler and he claims to support the current management. He and his investment firm, Trian Partners, do not dispute Iger’s CEO role or the company’s current configuration. On the contrary, they lament the stumble and falling share price given the powerful asset mix, seeing themselves as a “new perspective to improve performance”.
Trian fired its first salvo Wednesday in a statement called “Restore The Magic,” where it announced that Peltz would be running for a seat on Disney’s board of directors. His candidacy conflicts with the company’s proposed list of directors, which includes new board chairman Mark Parker. Shareholders vote on directors at the annual meeting, which is usually held in March. Trian has since released a stream of follow-up information, including a slideshow and chronicles of the overtures and meetings with various Disney representatives. Because it is relevant to Disney’s governance as a publicly traded company, the communiqués are being filed with the SEC. Trian has pointed investors to a constantly updated website dedicated to the effort to change Disney, RestoreTheMagic.com. In a filing Friday, it said it had received “numerous questions and statements of support from shareholders.”
Disney has not yet released its proxy filing for the latest fiscal year, which ended Oct. 1. The proxy is where it would set the date for the annual meeting and list its own list of directors and opposition candidates. The filing will also include other proposals to vote on, including from outside shareholders – and Trianon has few. The meeting must be quite eventful. They usually are: Last year, then-CEO Bob Chapek first publicly spoke out against Florida’s so-called “Don’t Say Gay” law, which was signed into law days later.
Aside from Trian, Iger continues to face a host of challenges in a rapidly changing media landscape. Chapek was abruptly ousted in November and the succession issue is ongoing. Iger has a two-year contract. Parker, who also serves as executive chairman at Nike, now heads Disney’s board. He replaced Susan Arnold because, Disney explained, she has reached the 15-year term as a board member, the maximum term allowed under the company’s bylaws.
Trian appears to be saying the silent part aloud. In an interview with CNBC, Peltz compared Disney to communist China, saying the $71.3 billion acquisition of 21st Century Fox in 2019 put the company “through the wringer” financially. That massive M&A deal, a cornerstone of the company’s headlong rush into direct-to-consumer streaming, helped wipe out the dividend, Peltz claims, a fixture the company’s many private investors have relied on for 57 years . Disney (and others) cut their dividends to save money during the pandemic and have yet to reinstate it.
Just before Christmas, Iger called Peltz to tell him that a virtual meeting was planned, but that it was unlikely to take place before January 6 “due to Mr Iger’s plans to sail his yacht off the coast of New Zealand .”
A pithy passage in an SEC filing describes a complete tick-tock from Trian’s point of view. Peltz spoke to Chapek last summer when the director was still CEO, the filing says, when he voiced his criticism of the company and expressed his desire to sit on its board of directors. In the following months, Chapek’s impeachment and a looming deadline for when new board members could be added to the ballot prior to the shareholders’ vote complicated dialogue. Just before Christmas, Iger called Peltz to tell him that a virtual meeting was planned, but that it was unlikely to take place before January 6 “due to Mr Iger’s plans to sail his yacht off the coast of New Zealand .”
A meeting was finally put on the books for last week.
The Disney episode followed a familiar playbook for Peltz, whose board activities have earned him a lot of attention in financial circles since Trian’s founding in 2005. He is currently non-executive chairman of The Wendy’s Corp. and serves on the boards of directors of Unilever and Madison Square Garden Sports Corp., the parent company of the New York Knicks and Rangers. Brooklyn-born Peltz, 80, is a hockey fan and friend of MSG chef James Dolan and has a personal investment in MSG. Previous board positions include Procter & Gamble, HJ Heinz and Sysco. Consumer products, not media, have generally been Peltz’s wheelhouse.
Trian has a nearly $1 billion stake in Disney, but given the size of the media company, that means the position is only about half a percent. While that humble commitment and Peltz’s relative lack of media experience may have put some Wall Streeters off, Trian’s counter is that they’re seeking just one board seat and that Peltz’s consumer experience matches Disney’s sizable footprint in theme parks and merchandise.
Shares in Disney, which hit an eight-year low in recent weeks and underperformed the S&P 500 and many media peers, initially reacted well to Peltz stirring the pot, rising more than 3% on Thursday. However, on Friday, they dropped a fraction of a point to close at $99.40.
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Iger had already outsourced the job for him due to the uncertainty in the theatrical film business, the negative momentum of the pay TV business and other headwinds. While he’s moved quickly to undo some of Chapek’s moves, he’s also the one who put Chapek in charge in the first place. It’s a decision that many observers, both inside and outside the Burbank company, still can’t reconcile with Iger’s storied run as CEO from 2006 to 2020.
Wall Street analyst Michael Nathanson, who maintains a “buy” rating on Disney stock, wrote a note to clients on Thursday expressing support for Peltz’s intervention, though he hopes Iger is allowed to carry out his plans.
“While we believe Trian is right to identify these issues, given the change in leadership, we believe the company will take prompt action to improve profitability,” he wrote.
“In our view, Disney’s underperformance relative to the S&P 500 is a combination of macroeconomic concerns (such as slowing consumer spending and advertising delays), pandemic impacts from park closures, post-pandemic structural headwinds such as accelerated cord-cutting and lower checkout visit. The few self-inflicted moves also include the acquisition of 21st Century Fox, raising Disney+’s TAM [total available market] in late 2020 (forcing the company to spend more on broader content offerings), and the decision to continue strengthening cricket rights in India and non-primary sports at ESPN.”
Overall, Nathanson expressed “optimism” that Iger will “make the tough decisions consistent with Trian’s objectives.” As a result, Disney’s long-term profitability “will now be higher than under previous leadership.”
Disney has not had to deal with such a shareholder disagreement since the early 1900s. Former Walt Disney executives Roy E. Disney and Stanley Gold caused a stir at the 2004 annual meeting in a bitter battle to oust then-CEO Michael Eisner. Shareholders at that meeting issued a shocking 45% vote of no confidence in Eisner, who was stripped of the chairmanship title. Disney and Gold also threatened a proxy fight to list opposition directors at the next annual meeting, but backed out. An ABC and Disney bon vivant, Iger eventually emerged from the tumult to become the company’s CEO.