https://www.yahoo.com/entertainment/return-activist-investor-nelson-peltz-131500124.html
The Return of Activist Investor Nelson Peltz, the ‘Major Thorn’ in Disney’s Side
Lucas Manfredi
Wed, November 1, 2023 at 8:15 AM CDT
After calling off a proxy fight with Disney in February, activist investor Nelson Peltz is back with a renewed push for a seat on the company’s board — with some added firepower from former Marvel Entertainment chairman Ike Perlmutter.
Peltz and his firm Trian Fund Management
previously called on Disney leadership to make changes to its corporate governance, strategy and operations and capital allocation. Specific asks have included developing a succession plan and aligning compensation with performance, cutting costs and reinstating Disney’s dividend by fiscal year 2025.
The latest challenge from Peltz and Perlmutter comes as Disney CEO Bob Iger continues to face a myriad of challenges, including a declining linear business and an unprofitable streaming platform. Iger also is engaged in a search for both a successor and permanent chief financial officer. The House of Mouse has embarked on a massive cost-cutting initiative and is even considering selling off assets. But efforts thus far have not given the company’s stock the boost that Peltz and Perlmutter have been hoping for.
Disney shares closed at $81.59 apiece on Tuesday, down 8.2% year to date and 23% lower over the past year, but above its 52-week low of $78.73 per share
Some analysts and academics told TheWrap that Iger and Disney’s initiatives deserve more time to bear fruit, but others believe Peltz could be just what Disney needs to push its leadership to produce a better return for shareholders in the short-term. During the last proxy fight, Disney notably touted a more than five-fold shareholder return
during Iger’s previous 15-year tenure and said that Peltz did not understand the company’s businesses and lacked “the perspective and experience to contribute to the objective of delivering shareholder value in a rapidly shifting media ecosystem.”
“Disney has been its own worst enemy for years,” Keith Fitz-Gerald, a private investor and the founder and principal analyst of the market research firm Fitz-Gerald Group told TheWrap. “Iger’s on the right track but I think he’s probably nowhere near as aggressive as Peltz will be when it comes to returning to prowess.”
Dr. Ann Murphy, a business professor at Stevens Institute of Technology, expects Peltz to “pressure Iger to pump the brakes on some of his long-term initiatives and pursue short-time strategies that can deliver returns for shareholders.” She told TheWrap that Peltz’s return isn’t a surprise given Disney’s “abysmal stock performance.”
Disney shares closed at $81.59 apiece on Tuesday, down 8.2% year to date and 23% lower over the past year, but above its 52-week low of $78.73 per share.
When Disney reports its fourth quarter earnings on Nov. 8, Iger either needs to convince Wall Street that his core media business can grow faster or cut more costs, Laura Martin, Needham & Company senior entertainment and internet analyst, told TheWrap.
“Nelson Peltz is going to be focused on more cost cutting, which is about saying no to more things in the Disney empire that aren’t strategic and shutting them down even though it might be painful,” she said. “If Peltz is there hammering away, Iger has high cover to do it.”
Martin believes that Peltz will be a “more demanding steward of public shareholder capital” than Disney’s current board and that Perlmutter’s backing only makes him a “more formidable force to listen to.”
Perlmutter Pressure
When combined with Perlmutter’s shares, Peltz and Trian have amassed about 33 million Disney shares (about 1.8% of the company’s total outstanding shares), which were valued at roughly $2.5 billion as of Tuesday, an individual familiar with the matter told TheWrap. That gives Peltz nearly four times as many shares to vote than he had during his last push. Peltz and Trian plan to use the stake to push for multiple board seats in an effort to increase accountability, the person said.
Disney’s board members, excluding Iger, collectively own less than $15 million worth of stock in the company, according to FactSet. Iger owns around $15 million in shares and has sold much of the stock he has received over the past two decades, The Wall Street Journal reported.
The 80-year-old activist investor, who co-founded Trian in 2005 with Peter May and Edward Garden, currently serves as the non-executive chairman of The Wendy’s Company and a director of Unilever PLC and Madison Square Garden Sports Corp. Other companies where Peltz has previously served as a board member include Janus Henderson Group plc, Invesco Ltd., Procter & Gamble, Sysco Corporation, Legg Mason, Inc. and Mondelez International.
Meanwhile, Perlmutter, the former chairman of Marvel Entertainment, notably butted heads with Iger and Marvel Studios president Kevin Feige and
aided Peltz in his last proxy fight. Disney laid off Perlmutter in March as part of a broader staff cutback. At the time, he argued in an interview with The Wall Street Journal that the termination was based on “fundamental differences in business between my thinking and Disney leadership, because I care about return on investment.”
In a statement shared with TheWrap on Monday, Perlmutter said he has entrusted voting control of his Disney stake to Peltz and Trian because he believes the firm is a “constructive voice” for shareholders that can help Disney leadership “better navigate the company’s challenges and opportunities,” citing their “strong operating and strategic capabilities.”
He added: “As someone with a large economic interest in Disney’s success, I can no longer watch the business underachieve its great potential.”
Perlmutter, who
received a stake in Disney following the company’s 2009 acquisition of Marvel, said he has not sold any stock and has been adding to his holdings over the years. By working with Peltz, Perlmutter hopes to increase the value of his Disney holdings so that he and his wife Laura can direct more funds to leading hospitals, medical research institutions and other charities where they intend to leave the vast majority of their wealth. (The pair have been active donors to New York University’s Langone Medical Center, according to the Wall Street Journal.)
If Peltz doesn’t get what he wants, he can nominate directors to be put up for a shareholder vote at Disney’s next annual meeting. The nomination window for new board members opens on Dec. 5 and runs until Jan. 4, according to
Disney’s latest proxy statement. Peltz and Trian are not asking Disney to give Perlmutter a seat on the board nor to rehire him, the individual familiar told TheWrap.
Can Peltz Rescue Disney Stock?
Ross Gerber, the CEO of wealth and investment firm Gerber Kawasaki Management is “not convinced that switching board members per se” is going to rescue Disney’s stock. He added that the moves carried out by Iger and
former Disney executives and Candle Media co-CEOs Kevin Mayer and Tom Staggs on Disney’s linear and streaming strategy thus far have benefitted shareholders.
Since Peltz’s last proxy fight, Disney has
extended Iger’s contract through 2026 and embarked on a plan to cut $5.5 billion in costs, including laying off 7,000 employees (3% of its global workforce), removing content from its streaming platforms and producing a lower volume of content. In the
third quarter of 2023, Disney’s direct-to-consumer division saw revenue increase 9% year over year to $5.5 billion and its operating loss narrow to $512 million from $1.1 billion a year ago. Executives expect Disney+ to reach profitability in fiscal year 2024.
As someone with a large economic interest in Disney’s success, I can no longer watch the business underachieve its great potential.
Ike Perlmutter, former Marvel Entertainment chairman
Iger also has been taking an “expansive” assessment of the company’s media portfolio, expressing a willingness to potentially offload Disney’s linear television networks and Star India business to the right buyer. The company is also searching for a strategic partner to help turn ESPN into a fully direct-to-consumer offering and plans to buy out Comcast’s minority stake in Hulu under a 2019 agreement and plans to merge the service with Disney+ under one app offering by the end of the year.
During the company’s third quarter earnings call, Iger said that the company was on track to meet or exceed its cost-cutting goal and said Disney would
trim its content budget for fiscal 2023 by $3 billion to about $27 billion in total spending, in part due to the SAG-AFTRA and Writers’ Guild of America strikes. Iger noted also that Disney was “actively exploring” ways to crack down on password sharing and plans to
“roll out tactics to drive monetization sometime in 2024.” Elsewhere, Disney plans to spend $60 billion on a theme parks expansion over the next decade.
Jeffrey Sonnenfeld, CEO of the Chief Executive Leadership Institute at the Yale School of Management and a longtime critic of Peltz, says that Iger’s turnaround effort has not been given enough time to take effect.
“A turnaround CEO needs two to 2.5 years to complete the job and a distraction in the middle of it is just a time-consuming diversion,” Sonnenfeld told TheWrap. “Iger is very strategic. He’s going to get top dollar for anything he sells and selling something in distress or in a rush destroys your negotiating leverage and shareholder value, not to mention it’s just chaotic and disruptive to the enterprise.”
In January, Sonnenfeld and CELI research director Steven Tian released an
analysis during Peltz’s last proxy fight which found that more than half of the companies he and his firm targeted underperformed the S&P 500, in both share price and total shareholder returns, while he was on their boards. Sonnenfeld and Tian also pointed out that Peltz has been downsizing after
shuttering a fund in the United Kingdom following a campaign from activist investors.
“Where’s the track record to say that he adds value?,” Sonnenfeld said. “He adds distraction like a dripping faucet.”
Regardless of whether Peltz’s push is successful, Murphy believes he will remain a “major thorn” in Disney’s side throughout the remainder of Iger’s tenure.
“It is up in the air if this will get resolved with or without a proxy fight, but either way, it is likely that at least Peltz will get a board seat,” she said. And with Iger scheduled to leave Disney in 2026, “Peltz may also influence Disney’s direction by having sway over who becomes Iger’s replacement.”
Representatives for Peltz and Disney declined to comment.
