Disney Stock Soars as Company Defends Bob Iger After Activist Slams Management

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Bob Iger

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The Walt Disney Company is preparing for a nasty boardroom battle with activist investor Nelson Peltz after the company opposed the billionaire’s efforts to join the board.

walt disney company headquarters
Credit: Disney

Related: Disney+ Is Losing Millions, But Disney Parks Could Be a Problem For Iger

The battle lines have been drawn. Yesterday, we learned that Trian Fund Management has officially set out the activist’s vision for what needs fixing. In response, current management at The Walt Disney Company responded by defending Disney CEO Bob Iger’s track record.

Disney CEO Bob Iger has been back at the helm for less than two months now, and there have certainly been several issues that he has been focused on to reverse some of the strategic direction that former CEO Bob Chapek set. Despite some of the bold initiatives and announcements he has already made, it seems that hedge fund manager Nelson Peltz is unsatisfied.

The proxy contest about to ensue is not a straight fight between Peltz and the Disney board. It will likely come down to whether shareholders feel Disney CEO Bob Iger can turn around the company’s fortunes or whether the answer lies with someone like Peltz.

Peltz’s Trian Fund Management said it wasn’t pushing for Iger to be replaced but identified several problems that urgently need tackling. It also wants to ensure smooth succession at the end of its proposed two-year tenure.

walt disney company headquarters sign
Credit: Disney

Related: Top Disney Executive Gunned For Chapek’s Termination

What Does Peltz Want?

Peltz and his team at Trian are arguing that despite Iger’s return, the shares are trading near an 8-year low and note that total shareholder return had underperformed the S&P 500 over 1-year, 5-year, and 10-year periods. It added that the media and entertainment giant’s problems were “primarily self-inflicted.” He went on to say in a statement, “In recent years, the company has lost its way resulting in a rapid deterioration in its financial performance from a consistent dividend-paying, high free cash flow generative business into a highly leveraged enterprise with reduced earnings power and weak free cash flow conversion.“

The Walt Disney Company’s direct-to-consumer business lost $1.5 billion in the last quarter, which was twice more than a year ago when it reported earnings in November. Iger said making the company’s streaming business profitable was one of his top priorities at his first town hall with employees.

Peltz believes this issue can be fixed and noted that “Disney has enormous potential, but today is struggling with numerous challenges and must act with urgency to accelerate profitability in its DTC business,” Peltz said. He suggested improving margins, cutting high costs, and refocusing creativity to drive profitable growth.

A couple of Guests using Disney Genie+ in front of Cinderella Castle at Disney World
Credit: Disney

Related: Famous Investor Says Former Disney CEO Bob Chapek Was “Ever-Incompetent” and “Ever-Woke”

In addition to streaming, Trian has also argued that the Disney Parks division is over-earning. In a presentation distributed on Wednesday afternoon, Trian also claims Disney is “over-earning” in domestic parks to “subsidize streaming losses.” Trian and Peltz specifically highlight, “We suspect it is short-term thinking that puts the brand value and long-term health of the business at risk.”

Peltz ultimately believes that the value of Disney is its flywheel. If you nickel and dime Disney Park fans, they will start to get discouraged by the brand. The businesses feed off one another, and this thinking can hurt the long-term reputation and brand of the company.

The battle seems to be also getting somewhat personal. Check out the video of what Peltz had to say this morning in an interview on CNBC earlier today:

What was Disney’s Response?

Disney said it opposed Peltz’s nomination and recommended shareholders vote for the company’s nominees instead. The company also elected Mark Parker as its new chairman, a board member for seven years, and the executive chairman of Nike.

Disney’s board went on to state that Iger’s mandate is to use his two-year term to adapt the business model for the shifting media landscape, rebalancing investment with revenue opportunity. It said Iger had taken significant steps to realign content creation and distribution and reposition Disney’s streaming platforms for enhanced profitability.

Disney also went on the attack and said its “long-term track record of financial and creative success” and Iger’s history with the company.

Disney said that the company’s total shareholder return in Iger’s first tenure–2005 to 2020–was 554%, outperforming the S&P 500’s 244% over the same period. It added that its market capitalization grew from $48 billion to more than $230 billion.

Left: Robert Iger, returning Disney CEO. Right: Cast Members wearing facemasks, waving at Main Street, U.S.A, in Disneyland

What Happens Next?

The vote at Disney’s annual shareholder meeting will be an early test of investors’ confidence in the man widely credited with growing Disney into the media and entertainment giant it is today during his first stint.

However, investors on Wall Street seem to be happy with the situation and Peltz’s participation. Disney’s stock is up roughly 4%, trading over $100 for the first time in months.

At the end of the day, no one really knows how this proxy fight will ultimately end. However, what can be said for sure is that there will be changes made at The Walt Disney Company in the near future.

Do you believe that Disney Parks have been making too much money in the last few years and hurting the Disney brand? Let us know what you think by leaving us a comment below.

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