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via Breakingviews
Trian Fund Management may not be able to restore the magic of Disney ( DIS ).But the fund run by Nelson Peltz, which is nominating directors to the $210 billion company’s board, certainly points to how Owner Bob Iger has lost the Disney magic. Trian and Peltz are likely to lose in the upcoming vote. But in a smaller world, Peltz probably deserves a seat at the table.
Trian posted more than 130 pages on Monday white paper, Includes some embarrassing diagrams. For example, in the 10 years before Peltz unveiled his latest campaign on Oct. 6, there were 2,519 trading days. According to the brief, if Disney shareholders bought shares 93% of the time, the shares would be worth less than they paid. The company’s stock underperformed the S&P 500 Index (SP500)) during the past one, three, five and ten years. Between 2018 and 2023, Disney’s adjusted earnings per share fell by nearly 50%, free cash flow fell by half, and annual dividends per share dropped by more than 80%.
Peltz Restoration’s idea was less compelling. He hopes to reignite Disney’s “flywheel,” a term that appeared 19 times in the presentation. But these suggestions are more forward-looking, and it is not yet clear what they mean. The pressure to focus on profit margins appears to be outdated — a complaint Peltz voiced last year and Disney responded to. In fact, the renewed focus on costs prompted activists to pause previous campaigns, and Disney’s market value has since rebounded. That, coupled with some incremental decisions, including a $3 billion stock buyback program and a $1.5 billion stake in Fortress Heroes parent company Epic Games, adds another notch to Iger’s standing.
Strong momentum also works in Iger’s favor. Other caged rattlesnakes have also flocked to the stock with their own campaigns, which could make combining behind Peltz more difficult. Iger won the support of the Disney family, who called the activists “wolves in sheep’s clothing.” And the shareholder base is concentrated among retail investors, making it harder to create momentum.
However, it is not the job of board members to fix the company. They just keep an eye on the CEO who’s doing the work. Here, Pelz has his strongest argument. Iger has had his contract extended six times, while many of the same board members are among those who have failed to find a new permanent boss. Disney’s leaders may not like this kind of oversight, but the company is long overdue.
contextual news
Trian Fund Management released a white paper on Walt Disney on March 4 as the company seeks to win two seats on its board of directors in an election on April 3. Trian, along with former Disney executive Isaac Perlmutter, has a beneficial position in Disney worth more than $3.5 billion. Trian pledged to fix Disney CEO Bob Iger’s succession process, tie pay to performance and launch a board-led review of the studio’s operations. The fund nominated Trian founder Nelson Peltz and former Disney CFO Jay Rasulo to its board of directors.
Editor’s note: Summary highlights for this article were selected by Seeking Alpha editors.
