Disney proxy fight follows months of investor overtures

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During the last several months, Walt Disney Co. has replaced its chief executive, promised a dramatic restructuring, embarked on a major cost-cutting effort and elected a new chairman.

But all that has not satisfied the demands of Nelson Peltz, a billionaire activist investor who has waged a months-long — and so far unsuccessful — campaign to join the Disney board of directors.

Peltz, known for using his clout on companies like Procter & Gamble, is now poised for a proxy fight in order to secure a board seat and pressure Disney to correct what he calls “self-inflicted” problems at the company amid its poor stock performance.

Regulatory filings released Thursday reveal details of how Peltz’s overtures to executives and the board escalated since they began last summer, coming to a head when he was offered an olive branch role as an advisor and observer, but not as a voting member.

His New York-based investment firm Trian Partners has nominated him for a board seat, against Disney’s wishes.

“They want my input on operations, but they don’t want my input on corporate governance,” Peltz, 80, said in an interview with CNBC. “That’s why they don’t want me to have a vote.”

What does Peltz want?

Peltz has been sharply critical of Disney’s performance, noting that the stock has underperformed the S&P 500, trading near eight-year lows despite the return of Bob Iger as CEO in November, and citing a decline in earnings per share since fiscal 2018 even with high profitability at its theme parks.

“Disney’s recent performance reflects the hard truth that it is a company in crisis with many challenges weighing on investor sentiment,” Trian said in a Thursday proxy statement.

Peltz’s group listed numerous failings, including poor succession planning, a “flawed” streaming strategy that is struggling with profitability and faulty judgment in mergers and acquisitions, specifically the $71.3-billion acquisition of 21st Century Fox that significantly increased its debt. The financial pressures led Disney to cancel its shareholder dividend, Trian said.

“Fox hurt this company,” Peltz told CNBC. “Fox took the dividend away. Fox took … what was once a pristine balance sheet into a mess.”

Aside from the costs, Disney’s 2019 acquisition of Fox secured some valuable entertainment assets, including James Cameron’s “Avatar” film franchise, prestigious FX cable programming, “The Simpsons” and a controlling stake in Hulu.

Like other media and entertainment companies, Disney was clobbered by the COVID-19 pandemic, which shuttered parks and movie theaters.

The Trian group’s criticisms were published on a website dubbed RestoreTheMagic.com.

Trian said it is not looking to have Bob Iger replaced, but rather wants the company to ensure a plan for a successful transfer of power within two years, something that Disney has long struggled with. Peltz, known for driving cost savings, is pushing for “efficiencies” at the company with the aim of restoring the dividend by 2025.

In disclosing the impending proxy fight on Wednesday, Disney rejected Peltz’s advances, while at the same time announcing the election of former Nike CEO Mark Parker as chairman, who will chair a CEO succession committee within the board. Iger’s contract is set to expire after two years.

How it started

The saga began with a July 11 lunch between Peltz, Disney’s then-CEO Bob Chapek and their wives at the company’s Hotel New York at Disneyland Paris, where Peltz expressed interest in joining the board, Trian said in its filing. That was followed by conversations between Peltz and board members Safra Catz and Amy Chang.

On Nov. 12, Peltz and other Trian executives met with Chapek to discuss the company’s performance, and encouraged Chapek to boost earnings through cost savings. Chapek then had Peltz speak with Disney Chief Financial Officer Christine McCarthy to try to set up an in-person meeting.

But by Nov. 20, the Disney landscape had changed dramatically. Chapek was out, and the board had brought back Iger as CEO, in a move that stunned Hollywood. Chapek was Iger’s handpicked successor, but the company lost confidence in his leadership, despite granting him a contract extension just months before.

Iger’s return was quickly hailed by Wall Street and employees, and he immediately announced a restructuring to return power to Disney’s creative leaders in order to help restore the company’s health.

Nonetheless, Peltz continued his efforts to join the board, participating in a Nov. 23 virtual meeting with Iger, McCarthy and Disney’s general counsel, Horacio Gutierrez. The Disney executives raised the idea of naming a mutually agreed upon independent director, though not one from Trian, but Peltz’s group balked at the suggestion.

On Nov. 30, Disney told Trian that it would not nominate Peltz to join the board. The next day, Peltz signaled his intention to nominate himself.

The back-and-forth culminated Tuesday when Trian gave a 45-minute presentation to the Disney board, explaining its diagnosis of Disney’s problems and how Peltz could help. Chairman Susan Arnold the next day offered Peltz an advisory role, which Peltz rejected, leading to Wednesday’s disclosures.

Who is Peltz?

Peltz has served as the CEO of Trian since its formation in 2005. He has served as a director of fast-food chain Wendy’s since 1993 and is its non-executive chairman. Peltz’s other board seats include Madison Square Garden Sports Corp. and Unilever.

A former junk-bond investor who teamed with former takeover financier Michael Milken in the 1980s, Peltz is a veteran of boardroom battles, specializing in undervalued or underperforming companies. In 2017, he battled Procter & Gamble for a board seat, ultimately winning.

This week, he disclosed his ownership of 9.4 million Disney shares, valued at some $900 million. Forbes estimates Peltz’s net worth at $1.4 billion. Trian has $8.5 billion in assets under management.

Peltz is far from the first activist shareholder to try to change Disney’s direction. Last year Third Point’s Dan Loeb attempted to pressure Disney to take certain strategic actions, including spinning off cable sports giant ESPN and combining Hulu with Disney+. He later backed off those demands.

Disney’s history is checkered with boardroom brawls. Roy E. Disney, son of Walt Disney’s brother Roy O., led a shareholder revolt with former board member Stanley Gold, leading to the early exit of Michael Eisner in 2005 after a 21-year run.

What’s next?

Disney has not announced a date or location for its annual shareholder meeting, but they typically happen in March. When the meeting happens, the shareholders will vote for the board nominees. After Arnold’s departure, the board is set to shrink to 11 members.

The company has asked shareholders to vote against Peltz, and instead support its own board nominees. In so doing, Disney touted Iger’s successful 15-year run as CEO that ended in 2020 with Chapek’s appointment. From 2005 to 2020, the company’s market value increased from $48 billion to $230 billion, the company noted.

“Mr. Iger has already taken decisive steps to realign content creation and distribution, and reposition Disney’s streaming platforms and linear broadcast and cable networks for enhanced profitability for the Company,” Disney said.

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