Nelson PeltzCriticisms against Walt Disney And the prospect of a rare proxy battle at the media giant has 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 request for a seat on the company’s board and criticism of management have caught Wall Street’s full attention already in disagreements over how to return the CEO. Bob Iger He will correct the ship. The rise of the iconic CEO at a time when the Disney chief is already facing a series of challenges, some industry-wide, others self-inflicted.
Peltz isn’t exactly a household name, at least in the world of entertainment (although his actors and show business have brought him into the orbit of Beckham and Selena Gomez). However, he could play an important role in the direction of the company – certainly if he could convince other shareholders to vote him on the board.
Activists tend to be the shout-and-shout veterans of the street, with no shortage of confidence that their vision trumps that of the administration. Perhaps most famous in media circles is Carl Icahn, who tangled with Time Warner and Lionsgate. Third hedge fund boss Daniel Loeb sparked fire from George Clooney during a clash with Sony and, most recently, turned the former Disney CEO Bob Network A list of demands such as sacking ESPN before finally backing down. Elliot Management has been known to get personal, demanding the ouster of AT&T Chairman John Stankey and his former boss, Randall Stephenson, at the top of the list of grievances.
By comparison, Peltz’s goals are much more explicit, and he claims to support the current administration. He and his investment company, Trian Partners, Do not oppose Iger’s CEO role or the current configuration of the company. Instead, they lament its stumbles and share price declines given its strong asset mix, and see themselves as providing a “new perspective on improving performance.”
Trian fired the first shot Wednesday in an overview dubbed “Restore The Magic,” announcing that Peltz would run for a seat on Disney’s board of directors. His nomination conflicts with the company’s proposed list of directors, which includes New Chairman Mark Parker. Shareholders will vote on the members of the board of directors at the annual meeting, which usually takes place in March. Since then, Trian has put together a collection of follow-up information, including slideshows and historical records of his initiations and meetings with several Disney representatives. Because that is relevant to Disney’s governance as a public company, the data is being submitted to the Securities and Exchange Commission. Trian has been directing investors to a frequently updated website dedicated to the effort to change Disney’s course, RestoreTheMagic.com. In a statement on Friday, it said it had received “numerous inquiries and expressions of support from shareholders.”
Disney has not yet released its proxy filing for the most recent fiscal year, which ended last October 1. The proxy is where she will schedule the annual meeting and list her directors, as well as opposing candidates. The filing will also contain other proposals that will be voted on, including from outside shareholders – and Trianon has a few. The meeting should be eventful. They usually are: Last year, former CEO Bob Chapek went public for the first time against Florida’s alleged “Don’t Say Like Me” bill, which was signed into law days later.
Away from Trian, Iger continues to face a host of challenges amidst a rapidly changing media landscape. Chapek was abruptly ousted in November The question of succession persists. Egger has a two-year contract. Parker, who is also CEO of Nike, now runs Disney’s board of directors. He replaced Susan Arnold because, as indicated by Disney, she had reached the 15-year mark as a member of the board of directors, the maximum term allowed by company regulations.
Trian seems to be saying the quiet part out loud. In an interview with CNBC, Peltz likened Disney to communist China, and said its $71.3 billion acquisition of most of 21st Century Fox in 2019 put the company “in a bind” financially. That massive M&A deal, a cornerstone of the company’s reckless push toward direct-to-consumer flows, wiped out the dividend, Peltz asserts, a 57-year period that many of the company’s retail investors count on. Disney (and others) have canceled their earnings to preserve funds during the pandemic and have not yet returned them.
Just before Christmas, Iger called Peltz to tell him that a virtual meeting was scheduled but that it was unlikely to take place before 6 January “because of Mr. Iger’s plans to sail the yacht off the coast of New Zealand”.
A spicy clip in one of the SEC filings gives full detail from Trian’s point of view. Peltz spoke with Chapek when the CEO was still CEO last summer, according to the memo, when he launched his criticism of the company and announced his desire to sit on the board. Over the subsequent months, Chapek’s ouster and a looming deadline for when new board members could be added to the ballot before shareholders vote complicated the dialogue. Just before Christmas, Iger called Peltz to tell him that a virtual meeting was scheduled but that it was unlikely to take place before 6 January “because of Mr. Iger’s plans to sail the yacht off the coast of New Zealand”.
A meeting was finally put on the books last week.
The Disney episode followed a familiar playbook for Peltz, whose board activities have garnered a lot of attention in the financial community since Trian was founded in 2005. He is currently the non-executive chairman of The Wendy’s Corp. He sits on the boards of Unilever and Madison Square. Garden Sports Corporation, parent of the New York Knicks and Rangers. Brooklyn-born Peltz, 80, is a hockey fan and friend of MSG President James Dolan and has a personal investment in MSG. Previous board assignments have included Procter & Gamble, HJ Heinz, and Sysco. Consumer products, not media, have generally been Peltz’s wheelhouse.
Trian owns a stake worth about $1 billion in Disney, but given the size of the media company, that means the position is only half of one percent. While that modest stake and Peltz’s relative lack of media expertise has put some Wall Streeters off, Trian’s counter is that they’re only seeking one seat on the board and that Peltz’s consumer experience matches Disney’s large footprint across theme parks and merchandise.
Shares in Disney, which touched an eight-year low in recent weeks and underperformed the S&P 500 and many media peers, initially responded well to Peltz’s move, rising more than 3% on Thursday. On Friday, though, they fell by a fraction of a point to close at $99.40.
His work on Iger has already been cut short given the uncertainties in the theatrical film industry, the negative momentum of the pay-TV business, and other headwinds. While he 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 many observers both inside and outside Burbank still can’t come to terms with Iger’s stellar management 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 to express support for Peltz’s intervention, though he hopes Iger will be allowed to carry out his plans.
“While we believe Trian is correct in identifying these issues, we believe that given the change in leadership, the company will move quickly to better profitability,” he wrote.
“In our view, Disney’s underperformance relative to the S&P 500 is a combination of macro concerns (such as slowing consumer spending and slowing advertising), pandemic fallout from theme park closures, and post-pandemic structural headwinds such as accelerated cord cutting and lower attendance at the box office. The moves include The few self-appointed also acquired 21st Century Fox, boosting Disney + TAM [total available market] in late 2020 (forcing the company to spend more on its broader content offerings), and the decision to continue promoting ESPN’s rights to cricket in India and non-core sports.”
Nathanson declared himself generally “optimistic” that Egger would make the “tough decisions that align with Trian’s goals”. As a result, Disney’s long-term profitability “will be higher now than it was under previous leadership.”
Disney has not encountered such shareholder opposition since early periods. Former Walt Disney executives Roy E. Disney and Stanley Gould raised hell at the 2004 Annual Meeting in a bitter fight to oust then-CEO Michael Eisner. Shareholders at that meeting delivered a shocking 45% vote of no confidence against Eisner, who was stripped of the title of chairman. Disney and Gold also threatened a proxy battle for the seat of an opposition slate of directors at the next annual meeting, but both backed off. Eventually, Iger, an ABC and Disney insider, emerged from the turmoil to become the company’s CEO.