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 suggests there’s plenty more fireworks to 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 anxious to see how returning CEO Bob Iger will fix the ship. The addition of the famous executive as Disney boss has already faced a number of challenges, some industry-wide, others self-inflicted.
Peltz isn’t a household name, at least in the entertainment world (although his actor and entrepreneur children put him in the orbit of Beckham and Selena Gomez). Still, he could play a significant role in the company’s direction — certainly if he can persuade other shareholders to elect him to the board.
Activists are typically brash, outspoken veterans of the streets, not lacking in confidence that their vision trumps management’s. Perhaps the best known in media circles is Carl Icahn, who took on Time Warner and Lionsgate. Third Point hedge fund chief Daniel Loeb drew George Clooney’s fire during a clash with Sony and recently provided former Disney CEO Bob Chapek with a list of demands including ESPN’s spin-off before eventually retiring. Elliot Management is known for getting personal and calling for the ouster of AT&T CEO John Stankey and his former boss Randall Stephenson, at the top of a list of complaints.
In comparison, Peltz’s goals are simpler and he claims to support current management. He and his investment firm Trian Partners do not dispute Iger’s CEO role or the company’s current configuration. Rather, they bemoan his pitfalls and falling share price given his strong asset mix, and see themselves as providing “new perspectives to improve performance.”
Trian fired its first salvo Wednesday in an overview titled “Restore The Magic,” in which it announced that Peltz would run for a seat on Disney’s board of directors. His candidacy conflicts with the company’s proposed list of directors, which includes new CEO Mark Parker. Shareholders will vote on the directors at the annual meeting, which is usually held in March. Trian has since released a range of follow-up information, including a presentation and chronicles of his overtures and meetings with various Disney representatives. Because it is relevant to Disney’s governance as a public company, the communiqués will be filed with the SEC. Trian has directed investors to a constantly updated website dedicated to the effort to reverse Disney, RestoreTheMagic.com. A filing on Friday said it had received “numerous inquiries and statements of support from shareholders.”
Disney has not yet released its proxy statement for the most recent fiscal year ended October 1. On the power of attorney it would set the date for the annual meeting and list its own list of directors as well as opposition candidates. The filing will also include other proposals to vote on, including from outside shareholders – and Trianon has few. The meeting should be quite eventful. They’re usually like this: Last year, then-CEO Bob Chapek publicly spoke out for the first time against Florida’s so-called “Don’t Say Gay” law, which went into effect days later.
Trian aside, Iger still faces a variety of challenges in a rapidly changing media landscape. Chapek was abruptly ousted in November and the succession question is ongoing. Iger has a two-year contract. Parker, who is also executive chairman at Nike, now leads the Disney board. He replaced Susan Arnold because, as Disney explained, she has reached 15 years as a board member, the maximum term allowed under the company’s charter.
Trian seems to say the quiet part out loud. In a CNBC interview, Peltz compared Disney to communist China and said the company’s $71.3 billion acquisition of most of 21st Century Fox in 2019 financially “threw it through the wringer.” That massive M&A deal, a cornerstone of the company’s rush into direct-to-consumer streaming, helped wipe out the dividend, claims Peltz, a 57-year-old stalwart relied on by the company’s many retail investors. Disney (and others) have cut their dividends to save money during the pandemic and haven’t reintroduced them yet.
Just before Christmas, Iger called Peltz to say a virtual meeting was being planned, but that it probably wouldn’t take place before January 6 “due to Mr Iger’s plans to sail his yacht off the coast of New Zealand”.
SEC Filing
A sharp passage in an SEC file describes a complete tick-tock from Trian’s point of view. Peltz spoke to Chapek when the executive was still CEO last summer, the filing says, when he launched his criticism of the company and announced his desire to sit on the board. In the months that followed, the fall of Chapek and a looming deadline for adding new board members before the shareholder vote complicated dialogue. Just before Christmas, Iger called Peltz to say a virtual meeting was being planned, but that it probably wouldn’t 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 scheduled last week.
The Disney episode followed a familiar script for Peltz, whose board tenure has garnered him considerable attention in financial circles since Trian’s inception in 2005. 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 company of the New York Knicks and Rangers. Brooklyn-born Peltz, 80, is a hockey fan and friend of MSG CEO James Dolan and has a personal investment in MSG. Previous board positions have included Procter & Gamble, HJ Heinz and Sysco. Consumer products, not media, were generally Peltz’s wheelhouse.
Trian owns a nearly $1 billion stake in Disney, but given the media company’s size, that means the position is only about half a percent. While that modest holding and Peltz’s relative lack of media experience have put off some Wall Street supporters, Trian counters that they only seek a seat on the board and that Peltz’s consumer experience rivals Disney’s sizeable presence in theme parks and merchandise.
Disney, which has hit an eight-year low in recent weeks and far outperformed the S&P 500 and many media peers, initially responded well to Peltz stirring the pot, rising more than 3% on Thursday. However, on Friday they slipped a fraction of a point to close at $99.40.
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Iger already had a lot of work for him to do amid the uncertainty in the cinema business, negative momentum in the pay-TV business, and other headwinds. Though 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 that many observers inside and outside the Burbank company still can’t reconcile with Iger’s legendary 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 Thursday expressing his support for Peltz’s intervention, though he hopes Iger will be allowed to carry out his plans .
“While we think Trian is right to identify these issues, we believe the company will quickly move towards better profitability given the change in leadership,” 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 advertising slumps), pandemic impact from park closures, post-pandemic structural headwinds such as accelerated cable cutting, and lower box office attendances. Also among the few self-inflicted actions is the acquisition of 21st Century Fox, boosting Disney+’s TAM [total available market] Late 2020 (which forced the company to spend more on broader content offerings) and the decision to continue advocating for cricket rights in India rather than primary sports at ESPN.”
Overall, Nathanson said he was “optimistic” that Iger “will make the difficult decisions that align with Trian’s goals.” As a result, Disney’s long-term profitability will be “higher now than under previous leadership.”
Disney hasn’t seen such shareholder dissent since its early days. Former Walt Disney directors Roy E. Disney and Stanley Gold raised hell at the 2004 annual meeting in a bitter battle to oust then-CEO Michael Eisner. Shareholders at that meeting cast a shocking 45% vote of no confidence in Eisner, who was stripped of his chairmanship. Disney and Gold also threatened a proxy fight to get a seat on an opposition list of directors at the next annual meeting, but backed down. Iger, an ABC and Disney partner, eventually emerged from the turmoil to become the company’s CEO.