Why Five Activist Investors Have Recently Taken Positions In Disney
As one of the top media companies around the world today, Disney (NYSE: DIS) is renowned for its hit movies, popular theme parks, and expansive entertainment offerings. However, the company has seen its share of negative coverage recently, from political controversy in its home state of Florida to succession challenges for its CEO.
This persistent tumult has drawn the interest of multiple activist investors over recent years. Now, tensions have boiled over in what appears to be a looming proxy fight. The stakes are higher than ever at the Mouse House, with some shareholders demanding a seat at the corporate table.
Key issues remain unresolved, such as whether or not these feuding sides will go the distance in their battle for control. With the company’s next annual meeting expected to occur in Q2/2024, Disney shareholders may want to pay close attention to the activist situation, as it could have a material impact on the future direction of the company.
Timeline of Recent Activism
Disney’s shareholder returns have been weak in recent years. Over the past 9 years, share prices remain essentially unchanged. Over shorter time horizons, the company’s stock has declined significantly.
Weak shareholder returns are often seen as the impetus for activism. Investors are more likely to seek changes to a company leadership, strategy, etc. when the company has failed to deliver profits to its investor base.
In August 2022, activist investor Third Point (run by Dan Loeb) made public its views on Disney, while also disclosing that it had been accumulating a position. Loeb stated five key points which it wanted the company to consider:
- Cut operating costs
- Pause the dividend and use the proceeds to reinvest or reduce debt
- Acquire Comcast’s remaining stake Hulu
- Spin off ESPN (a point which Loeb later reversed)
- Refresh the board
By September 2022, Disney’s leadership reached a deal with Third Point, appointing a new director to its board. The board soon removed then-CEO Bob Chapek and brought back longtime CEO Bob Iger to the helm.
However, these moves did not stave off interest from other activists. By early 2023, activist investor Trian Partners disclosed its interest in the company. In response, Disney’s management announced a major restructuring program, which aimed to cut costs and reorganize the company’s businesses.
At the time, Nelson Peltz (Trian’s founder) stated that he was suspending their proxy fight, as the company’s new program had alleviated his concerns. In May 2023, Third Point had fully exited its position.
But as Disney’s stock price extended its decline throughout 2023, investors began to see that results were not coming anytime soon, and more aggressive actions might be necessary to stem losses.
Trian’s Renewed Push
In October 2023, Trian reported that it had accumulated additional shares, with their stake nwo totalling nearly $2.5 billion. And one month later, Peltz’s fund announced that it was seeking multiple seats on Disney’s board of directors.
In a prophylactic measure, the company’s incumbent board added two new directors, including James Gorman (CEO & Chairman of Morgan Stanley) and Jeremy Darroch (media veteran and former CEO of Sky). By adding these new directors, the company has bolstered its position against challengers like Trian.
However, the situation at Disney has become increasingly complicated due to the entrance of additional activist investors, each with their own set of interests. For one, ValueAct has reportedly accumulated a position in Disney, although the exact size of their stake remains unknown. ValueAct is known for its moderate approach to activism, whereby it acts as a white knight or collaborator for corporate boards. By inserting itself in the middle of the heated situation between Iger and Peltz, ValueAct may be able to secure an advantageous position (potentially including a board seat) for itself.
Within a matter of days, another activist fund, Blackwells Capital, called for Trian to end its campaign at the media giant. In so doing, Blackwells has aligned itself with Disney’s management and incumbent board, posing an additional challenge for Trian. What makes Blackwells’ move more interesting is that the firm is not only opposing Trian in the ongoing Disney situation; it has also launched its own campaign at Wendy’s, one of Trian’s most notable activist targets from years ago.
Finally, Ancora Holdings (the fifth activist in this story) has issued its own letter suggesting that Disney’s leadership compromise with Trian by appointing Peltz to the board. By siding with Trian, Ancora provides further support for change at the company.
The nomination window for shareholders to suggest candidates for next year’s election now runs from December 5, 2023 till January 4, 2024. The company’s next annual meeting is expected to occur sometime around April 2024.
Several factors remain unresolved at present. First, it is unclear exactly what Trian’s proposal for Disney will entail. Besides changes to the board, will they push for changes in management? Will they push for a sale of assets, or do they have a plan for revamping the company’s inefficient operations?
Furthermore, given all the competing interests at play, will Trian have the wherewithal to launch a costly proxy contest? Is the potential upside worth the massive risk and costs that would likely be necessary to win in a heated fight?
The two sides may even buy shareholder votes as another way to gain an advantage in an extreme contest. As a result, neutral investors may stand to benefit as both parties wrestle for control over one of the world’s largest media conglomerates.
Trian has achieved much success in prior campaigns, such as at Procter & Gamble (NYSE: PG) in 2017. In that contested situation, costs ballooned to north of $60 million. The activist eventually prevailed in that fight, leading to big gains in PG’s stock, and reaping billions of dollars of profits in the process.
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