For those who follow behind-the-scenes Disney business news, the buzz is beginning to grow around a few terms: “Activist Investors,” “Trian Fund Management” and the name Nelson Peltz. Here’s what’s going on.
Back in July of 2022 Nelson Peltz, founder of the Trian investment firm began meeting with Bob Chapek, Isaac “Ike” Perlmutter (CEO of Marvel Entertainment), and other executives of the Walt Disney Company in order to secure himself a seat on Disney’s Board of Directors.
The Board rejected Peltz’s multiple requests — notably, Perlmutter personally has made over 20 requests to get Peltz on the board since July — and so, in November, Trian purchased over $800,000,000 in Disney stock (approximately a .5% share in the company) and threatened to wage a proxy fight if he wasn’t added to the Board.
This is where the term “activist investor” comes into play. It refers to an investment in a company with the intention that the investor will be able to force their way into a decision-influencing position, normally through convincing enough other investors to vote to put the activist on the board of directors. Nelson Peltz formed Trian to do exactly this sort of thing in order to forcibly reform struggling businesses. He has had notable success with companies such as Procter & Gamble and Heinz as well as some prominent disasters such as his involvement with General Electric.
In late November, Peltz and Perlmutter met Chapek in person in Palm Beach to again push for Peltz’s desired board seat. We don’t know the outcome of that meeting, but two weeks later Chapek was fired and replaced by current Disney CEO Bob Iger. By late December Peltz had contacted Iger directly, again threatening a proxy fight as well as a challenge to Bob Iger’s legacy. (Disney SEC filing 1/17/23)
This turned the cold war into a firefight.
Trian released a 36-page long treatise that was short on practical action items, but big on casting shade.
[EMBED PLACEHOLDER – MANUAL REVIEW REQUIRED]
And Disney rebutted with an SEC filing just as scathing.
Two main themes recur in Trian’s attack on Disney’s current fiscal situation: that the Fox purchase under Iger was a colossal mistake that threw the company’s balance sheets into total disarray and that the profitability of the parks are being over-squeezed for every penny that they can produce to pay for the lack of profitability of the Disney+ streaming service. This latter point is interesting because Trian’s take on this idea of milking profitability from the parks actually lines up both with many complaints from Disney park-goers as well as with those who are concerned about low wages for park staff, which is an odd and rare synchronicity between the desires of Wall Street and Disney’s fans.
To whit:
The recurring issues and complaints related to Disney “Cast Member” wages(2) while the Parks business experiences rapid margin expansion further our concerns it is over-earning ‒ Valuable employees are a crucial component of driving better guest experiences… Disney may believe that price increases and “nickel-and-diming” of Cast Members and other costs is good for the bottom line… however, we suspect it is short-term thinking that puts the brand value and long-term health of the business at risk (“Restore the Magic” — Trian/Disney Presentation)
As far as Iger himself goes, while Trian claims to not be interested in replacing Iger as CEO, their own document makes it clear that they consider him much of the problem:
While Bob Iger just “re-joined” the Board, he has essentially served on the Board since 2000 with only a short respite from January — October 2022 (~10 months)…
There are still several current directors and members of management who oversaw and approved some of Disney’s worst corporate governance and strategic failures, including overpaying for the Fox acquisition, the expanding streaming losses, and “over-the-top” compensation packages granted to Bob Iger (“Restore the Magic” — Trian/Disney Presentation)
Disney, in response, pointed out in their report that Peltz and Trian have almost no experience with a media company. Then, to counter the direct attacks on Iger noted that the return on investment that the CEO had produced during his fifteen initial years had been extraordinary. They also point out that the value of the acquisitions made under Iger (Pixar, Star Wars, Marvel) have been notably successful and, in direct response to criticism of the Fox purchase:
“… all [the acquisitions] were tagged with the “Disney overpaid” narrative which has proven to be highly inaccurate” (Disney SEC filing 1/17/23)
So where does it go from here? The first question is whether Trian can convince enough shareholders to vote for putting Nelson Peltz on the board of directors. It won’t be a cakewalk. Not only are Disney investors generally wary of interlopers, but the board has already taken steps that address many of the issues that Peltz claims can help with: a new succession plan, cost-cutting initiatives, a new Chairman of the Board, park experience improvements. The non-profitability of Disney+ is still an issue, but the Trian document offers no solution, it only suggests that it SHOULD be profitable. It is hard to interpret what Trian’s statement about “reinvigorating the Disney flywheel” might mean.
Trian’s record for turning struggling company’s profitability around is generally good, however, and shareholders may be swayed. If Peltz is, then, on the board, what can be expected?
This is all wildly speculative, of course, but here are some possibilities of things he might advocate for:
Buy out the Comcast share of Hulu. Peltz has said that Disney needs to either own Hulu outright or “get out of the streaming business.”
Do SOMETHING with ESPN. Peltz has said that he’s not interested in making a change as drastic as selling it, but it’s a problem and Peltz is here to cut costs. Something has to give.
Fire Bob Iger. Trian’s document says that it doesn’t want to replace the CEO and then proceeds to blame Iger for most everything they consider wrong with the company. There is a reason that Disney’s CEO has reacted so strongly to all of this. Perlmutter, too, has a bone to pick with Iger as the Disney CEO was responsible for removing all of the Marvel CEO’s authority over the Marvel Cinematic Universe and it would be unsurprising if this weren’t part of the reason that he has so strongly backed Peltz during all of this; to discredit and, now, remove Iger.
Massive cuts in staff. When companies like Trian come in to “cut costs” this is usually what they mean. This is where Peltz’s unfamiliarity with running media/entertainment companies becomes a real problem.
Rollback of any messaging that is deemed “progressive.” The elephant in the room is that, while he has distanced himself from the former president since the January 6th riots, Nelson Peltz was one of the largest individual donors to the Trump campaign in 2020 and hosted fundraising events that raised tens of millions of dollars for the former president. He had also contributed a quarter of a million dollars to George W. Bush’s inauguration ceremony. It is safe to say that he will be in favor of quieting any politics, particularly any that lean to the left, that come from the company. Perlmutter, too, is a large-scale Republican donor which, again, might explain why he is so solidly on Peltz’s team.
Again, this is all pure speculative guesswork. Only time will give us the real story.
Superficially, this strange period in the Disney company’s history may feel a little like the storming of the Magic Kingdom hostile takeover attempt in 1984 that led to a completely revitalized Disney under Frank Wells, Michael Eisner, and Jeffrey Katzenberg; but that is over-dramatizing the situation. This is the case of an investor attempting to wedge his way into a position of power and influence the direction of the company as it moves forward. It is not a “takeover and sell it for parts” situation like it was in the 80s. But The Walt Disney Company is in a fragile state right now and influencers could well have unnaturally outsized influence; so it is significant. In a few months, we should have a better idea of where this is all headed.
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Kelly McCubbin is a columnist for Boardwalk Times
