Nelson Peltz’s appearance against Walt Disney Co. and the prospect of a rare proxy fight at the media giant have stunned media circles this week — and a flurry of SEC filings over the past few days suggests more fireworks to come.
The activist investor’s demand for a seat on the company’s board and criticism of management has caught the attention of a Wall Street already confused about how returning CEO Bob Iger will right the ship. The famous executive’s tenure as head of Disney is already facing a number of challenges, some industry-wide and others self-inflicted.
Peltz isn’t exactly a household name, at least not in the entertainment world (although his children, an actor and entrepreneur, have brought him into the orbit of Beckham and Selena Gomez). However, he could play a significant role in steering the company – if he can convince other shareholders to vote him onto the board.
Activists tend to be bold, outspoken veterans of the street, with no shortage of conviction that their views are superior to those of the leadership. Perhaps the best known in media circles is Carl Icahn, who is involved with Time Warner and Lionsgate. Daniel Loeb, the head of hedge fund Third Point, has come under fire from George Clooney during his fallout with Sony and recently offered a list of demands, including a divestment from ESPN, before backing down from former Disney CEO Bob Chapek. Elliot Management is known to have gone personal, demanding the resignation of AT&T chief John Stankey and his former boss, Randall Stephenson, in a list of grievances.
By comparison, Peltz’s goals are more modest, and he claims to support the current leadership. He and his Trian Partners investment firm do not object to Iger’s position as CEO or the company’s current configuration. Instead, given their strong asset mix, they bemoan their stumbling and falling share prices and offer themselves a “new perspective to improve performance.”
Trian fired the first salvo in Tuesday’s “Restore the Magic” review, where he announced that Peltz would run for a seat on Disney’s board. His nomination is against the company’s proposed slate of directors, which includes new board chairman Mark Parker. Shareholders will vote for directors at the annual meeting, usually held in March. Trian has since released a series of follow-up streams of information, including a slide deck and his pitches and a chronicle of his meetings with various Disney representatives. Because this is consistent with Disney’s management as a public company, the communiques are filed with the SEC. Trian points to a continually updated website dedicated to efforts to turn investors around Disney, RestoreTheMagic.com. In a filing Friday, it said it had received “numerous inquiries and expressions of support from shareholders.”
Disney has not yet released its proxy statement for its most recent fiscal year, which ended Oct. 1 last year. This is where the attorney will set the date for the annual meeting and list his or her slate of directors as well as opposition candidates. The document will also have other proposals to be voted on, including by outside shareholders – and Trianon has few. The meeting should be quite eventful. They usually are: Last year, then-CEO Bob Chapek first spoke out against Florida’s Don’t Say Gay bill, which was signed into law a few days later.
Trian aside, Iger still faces a number of challenges amid a rapidly changing media landscape. Čapek was suddenly ousted in November and the succession issue continues. Iger has a 2-year contract. Parker, who was Nike’s executive chairman, now heads Disney’s board. He replaced Susan Arnold because Disney explained that she had exceeded the 15-year limit as a board member, the maximum length of service allowed under the company’s bylaws.
Trian seems to say the silent part out loud. In an interview with CNBC, Peltz likened Disney to Communist China and said the $71.3 billion acquisition of a majority stake in 21st Century Fox in 2019 had “irritated” the company financially. That big M&A deal, a cornerstone of the company’s direct-to-consumer move, contributed to the dividend wipeout, which Peltz argues is a 57-year fixture that many of the company’s retail investors rely on. Disney (and others) cut their dividends to conserve cash during the pandemic and have yet to restore them.
On Christmas Eve, Iger was able to call Peltz to say that a virtual meeting was planned, but that it would not take place until January 6, “due to Mr. Iger’s plans to sail his yacht off the coast of New Zealand.”
A spicy passage in an SEC filing details a full tick from Tria’s point of view. Peltz spoke with Chapek last summer while the executive was still CEO, the filing said, expressing criticism of the company and expressing interest in sitting on the board. In the months that followed, Chapek’s resignation and a looming deadline for when new board members could be added to the ballot before a shareholder vote complicated dialogue. On Christmas Eve, Iger was able to call Peltz to say that a virtual meeting was planned, but that it would not take place until January 6, “due to Mr. Iger’s plans to sail his yacht off the coast of New Zealand.”
Finally, an appointment was made for last week’s books.
The Disney episode followed a familiar playbook for Peltz, whose board activities since founding Trian in 2005 have earned him considerable attention in financial circles. He is currently non-executive chairman of The Wendy’s Corp and sits on the boards of Unilever and Madison Square. Garden Sports Corp., parent of the New York Knicks and Rangers. Peltz, 80, a Brooklyn native, is a hockey fan and friend of MSG CEO James Dolan and has a personal investment in MSG. Previous board members include Procter & Gamble, HJ Heinz and Sysco. Consumer products, not media, have generally been Peltz’s wheelhouse.
Trian has a stake in Disney worth about $1 billion, but given the size of the media company, that’s only half a percent of the position. While that modest stake and Peltz’s relative lack of media experience put off some Wall Streeters, Tria estimates they’re only looking for a wooden seat, and Peltz’s consumer experience matches Disney’s significant footprint across theme parks and merchandise.
Disney shares, which have hit eight-year lows in recent weeks and underperformed the S&P 500 and many media peers, initially responded well to Peltz’s stirring of the pot, rising more than 3% on Thursday. On Friday, though, they lost a fraction of a point to move closer to $99.40.
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Given the uncertainty in the theatrical movie business, negative momentum in the pay-TV business and other headwinds, Iger already had his work cut out for him. Although he is quick to reverse some of Čapek’s actions, he is also the one who fulfills Čapek’s duty in the first place. It’s a decision that many observers inside and outside the Burbank company still can’t reconcile with Iger’s tenure as CEO from 2006 to 2020.
Wall Street analyst Michael Nathanson, who maintains a “buy” rating on Disney shares, wrote a note to clients Thursday expressing support for Peltz’s intervention, though he hopes Iger will be allowed to go ahead with his plans.
“While we think Tria is correct in identifying these issues, given the change in leadership, we believe the company will move quickly to achieve better profitability,” he said.
“In our view, Disney’s underperformance relative to the S&P 500 is a combination of macro concerns (such as slowing consumer spending and sluggish advertising), pandemic fallout from park closures, accelerated cord-cutting and post-pandemic structural headwinds such as lower box office attendance. A few moves of its own include the acquisition of 21st Century Fox, which boosted Disney+ TAM. [total available market] at the end of 2020 (forcing the company to spend more on broader content offerings) and the decision to continue to strengthen cricket rights in India and non-primary sports on ESPN.
Nathanson said he is “optimistic” that Iger will make “difficult decisions that align with Tria’s goals.” As a result, Disney’s long-term profitability “will now be higher than it was under previous management.”
Disney has not faced such shareholder discontent since its inception. Former Walt Disney executives Roy E. Disney and Stanley Gold raised hell at the 2004 annual meeting in a bitter battle to unseat then-CEO Michael Eisner. At that meeting, shareholders voted a shocking 45% no-confidence against Eisner, who was stripped of his chairmanship. Disney and Gold also threatened to hold a proxy fight to seat an opposing board of directors at the next annual meeting, but backed off. An ABC and Disney lifer, Iger eventually emerged from the fray and became the company’s CEO.