The battle for Disney: Magic Kingdom prepares for battle with Nelson Peltz

A buzz of excitement kicked off Hollywood after Bob Iger returned to Walt Disney in late November, hoping the veteran CEO would help his company — and the ailing entertainment industry as a whole — find its way back.

But behind the uproar, Eger’s halo has shown signs of tarnishing since he stepped down in 2020, holding back activist Nelson Peltz who is now making the focus of One of the biggest US proxy fights in years.

The A-form in Peltz’s case is Iger’s $71 billion acquisition from Rupert Murdoch’s 20th Century Fox in 2019, which the investor portrayed as a boom-time deal that saddled Disney with $42 billion in debt, limiting its room to maneuver.

Peltz also exploited Egger’s botched handling of his succession, which became such a protracted affair that some promising candidates left the company. Relations between Egger and his chosen successor, Bob Chapek, were notoriously strained and ended tangle eviction last year.

These episodes from Iger’s past are some of the core arguments that Peltz, known for a relentless $100 million activist campaign against Procter & Gamble, is plotting a campaign against one of the most high-profile CEOs in corporate America.

While Disney faces a rapidly evolving media environment[ . . . ]”We believe the company’s current problems are largely self-inflicted,” Peltz, whose company Trian Fund Management bought a stake worth nearly $900 million, wrote to the board this week.

The hostile rhetoric — and a preemptive modification of the painting by Disney — are the culmination of months of behind-the-scenes tension. At stake will not only be the media group’s strategy at a pivotal point in its move into broadcast, but Egger’s own legacy.

After his bid for a Disney board seat was rejected on Wednesday, Peltz stopped short of calling for Iger’s resignation. But in his case to investors, he portrayed Disney as a company in “crisis,” with its share price near eight-year lows. The stock rose 2.7 percent to $98.92 in New York trading on Thursday, after news of the crackdown emerged.

Peltz’s accusation against Iger is that his vaunted expansion of the Disney empire came at the expense of performance and margins. In a presentation titled “Restore the magic”points out that shareholder returns over the past decade are not even half of the S&P 500’s.

While dealmaking has helped add nearly $24 billion in revenue to $83.7 billion over the past five years, Peltz claims service and product costs have risen by two-thirds, operating margins nearly halved and free cash flow down 90 percent. Cent. Meanwhile, dividends, paid steadily for more than half a century, have evaporated during the pandemic.

“We believe Disney is at a crossroads: It can decide to fight adding one qualified board member” — namely Peltz — or “work with Trian to create sustainable, long-term value at Disney,” according to one of the slides.

The Little Mermaid and Prince Eric in the Disneyland Paris parade
Nelson Peltz says the expansion of the Disney empire has come at the expense of performance and margins © LAR Cityscapes / Alamy

Disney’s blunt response to Peltz, who called it “among the worst” examples of shareholder engagement he’s ever seen, couldn’t have been more different from its treatment of another activist investor last year: Third Point’s Daniel Loeb.

Disney officials described the discussions as friendly with Loeb, who eventually succeeded in naming media veteran Carolyn Iverson to her board last fall. Loeb dropped some other demands, such as his call for Disney to spin off the ESPN sports network.

By contrast, Disney plans to stand firm in the demands of Peltz, who revealed his stake weeks after Loeb secured Iverson’s hiring. “We’re not going to back down,” said a person close to Disney. We’ll fight him if he wants to fight.

Peltz rambles on Disney’s current strategy, claiming its broadcast plans are flawed, costs are out of control, and punishing park customers with short-sighted price hikes to make up for the poor performance of the rest of Disney’s business.

But Disney insiders don’t mind him, citing Peltz’s lack of experience with media and technology. Someone said, “We don’t know why it would be useful on the board.”

Peltz had planned to launch his rocket Thursday, but Disney walked out a day before announcing a board shake-up and opposing Peltz’ request for a seat.

It leaves Disney’s defense in the hands of veteran Mark Parker, who will replace Susan Arnold as president.

Walt Disney employees and protesters during a rally against the Florida bill
Disney has been embroiled in a messy fight over so-called “Don’t Say Like Me” legislation in Florida © Alisha Jucevic / Bloomberg

Disney said Arnold was not up for re-election due to his 15-year term. But her departure potentially deprives Peltz of one important line of attack against Disney and its board.

Arnold came under scrutiny last year when Chapek got involved in a game Messy fight with Florida’s governor on the so-called “Don’t Say Like Me” legislation, which sparked outcry from LGBTQ Disney employees. After a flurry of negative publicity for Disney, Arnold extended Tangled’s contract – only to have him abruptly fired in November.

In a statement, Parker said his top priority as president would be to “identify and prepare a successful CEO successor” and that the process “has already begun.”

Iger is not expected to provide many details about his strategy for the company until after the company reports its results on February 8th. But he has already announced plans to reorganize the management structure of the Tangled era that has infuriated Disney studio bosses. The company has also begun implementing a cost-cutting plan.

Disney insiders criticized Biltz for not providing his own detailed performance improvement plan. “It’s really surprising that there are criticisms out there, many of which are inaccurate or spinning, but there is literally no single solution,” said the person close to Disney. Peltz doesn’t have a plan.

Peltz points to his three previous proxy fights — Heinz in 2006, DuPont in 2015 and P&G in 2017 — as evidence he can work with companies to boost results. “Management’s views of Trian and Nelson Peltz changed dramatically after we began working with them to enhance shareholder value,” Trian’s offering claims.

But Disney insiders say his experience at those consumer companies like Procter & Gamble is unrelated.

“Peltz is a smart and successful investor with a good track record in consumer staples brands,” said a person close to Disney. But the idea that selling soaps and detergents is the same as what Disney does, which creates universality [intellectual property]this is not true “.

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