DISNEY WAR! NELSON PELTZ VS. BOB IGER

Welcome to #8 of Leeds1888 and to my new readers!

The entertainment mammoth, Disney, is back in the news. 

And the reasons this time are not very cordial.

There is a tussle going on between activist-investor Nelson Peltz and Disney for a seat on the board of the company before the annual stakeholder meeting in March 2023.

Who is going to win this fight?

Who will define the business strategy in the coming days as Disney turns 100 years old in 2023???

In this edition, we discuss why Peltz is suddenly interested in the affairs of the company & what he has got to say about the company’s financial performance. 

To find out more continue reading-

Here is what is covered in this newsletter-

• Weekly box office chart

• What happened in the media & entertainment space last week, and

• DISNEY WAR! NELSON PELTZ VS. BOB IGER: The 35-Page Nelson Peltz Plan To Fix Disney Analysed!

Before moving ahead, a small request-

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 What occurred in media and entertainment this week?

1. Centre cracks down on 6 YouTube channels for 'spreading fake news'- The YouTube channels were found to be spreading fake news about the elections, proceedings in the Supreme Court and Parliament, and the functioning of the government, the statement said. The channels are - Nation TV with over 5.57 lakh subscribers, Samvaad TV with 10.9 lakh subscribers, Sarokar Bharat (21,100), Nation24 (25,400), Swarnim Bharat (6,070) and Samvaad Samachaar (3.48 lakh), the statement said.

2. 'MX Player third most downloaded OTT app globally'- MX Player was ahead of Amazon Prime Video, which came in fourth, according to the State of Mobile 2023 report by Data.ai, formerly known as App Annie.

3. Reed Hastings is stepping down as co-CEO of Netflix- Netflix's co-founder Reed Hastings has stepped down as co-CEO of the media giant after nearly 25 years in the role.Netflix's COO Greg Peters will step into the co-CEO role, joining Ted Sarandos, who has served as co-CEO since 2020, according to the company. Hastings will stay on as Netflix's executive chairman.

4. Netflix set for slowest revenue growth as ad plan struggles to gain traction- The company is expected to have added 4.5 million subscribers in the fourth quarter - the lowest addition for the holiday period since 2014. It added 8.3 million subscribers a year ago.

5. Ultimate Kho Kho gets 41-million viewers on TV & digital in Season 1: CEO- The inaugural season of Ultimate Kho Kho, an 80:20 joint venture league between an entity owned by Dabur India's Amit Burman and the Kho Kho Federation of India (KKFI), has generated cumulative viewership of 41 million on TV and digital in India. Burman's Kho Kho Sports League (KKSL) has earmarked ₹200 crore of investment for the first five years of the franchise-based league.

Worldwide Collection of Best Movies

And in the story of the week, we will now discuss the trending news of this year in media & entertainment-

DISNEY WAR! NELSON PELTZ VS. BOB IGER

The 35-Page Nelson Peltz Plan To Fix Disney Analysed!

What's the controversy all about?

The controversy in brief-

Disney has been trying to hide billions in losses from the $71 billion Fox acquisition (overpaid by tens of billions) and keep outsiders from interfering with the management of the Disney+ streaming service.  

Nelson Peltz has laid out a basic 35-page plan to refocus Disney on making money for its shareholders again and rebuilding its intellectual property 'flywheel' as he calls it (making great content that gets people excited about their properties again).   

It should also be noted Peltz is very close with Ike Perlmutter, the Israeli-American billionaire businessman and financier who lost control of the Marvel brand when he sold it to Disney and they stopped taking his feedback on those properties.   

This was the start of the diversity/equity focus on Marvel.   

Is Perlmutter back to winning the game? 

Let’s understand the issue in detail now.

Before we move further, let's see who Nelson Peltz is.

Nelson Peltz was born in Brooklyn, New York on June 24, 1942. He briefly attended the Wharton School at the University of Pennsylvania. 

In 2005, Nelson Peltz co-founded Trian Fund Management with Peter May and Edward Garden. A hedge fund investment firm, Trian has investments in companies such as Wendy’s, BNY Mellon, Ingersoll Rand, Legg Mason Inc., Heinz, Kraft Foods, Family Dollar, Tiffany & Co., and Domino’s Pizza. 

Trian Fund Management has under management $8.5 billion in assets as of 2022.

How does Peltz run the show generally?

Regarded as an activist investor, Nelson Peltz

buys stakes in companies considered undervalued and then lobbies for changes within the company such as higher dividends, share buybacks, cost cuts, management changes, and sometimes company dissolution.

He has successfully acquired board seats at many companies through Trian Fund Management. 

Nelson Peltz Refer to Himself as a “Constructivist”

The term activist investor often has a negative connotation as one who would like to bombard a company with changes and unnecessary influence. 

Peltz prefers the term constructivist, claiming he merely presses companies to increase revenues and encourages them to spend more on marketing.

And this is what has started a new controversy between Peltz and Disney CEO Iger. 

How did the controversy start?

Last year in November 2022, the Trian Fund Management took an approximately $800 million stake in Disney. 

Trian was interested in growing this stake to acquire more stock, which is consistent with the size of positions Trian historically takes in mega-cap companies. 

The investor wanted a board seat, advocating for the company to make operational improvements and reduce costs, and it expressed its opposition to Robert Iger’s reappointment as CEO.

But Disney had other plans

When Peltz’s Trian Fund Management confirmed that it had nominated Peltz to Disney’s board, 

Disney did not offer a seat to Trian.

Disney is opposing activist investor Nelson Peltz’s attempt to join the board. 

His candidacy is in opposition to the company’s proposed slate of directors, which includes former Nike CEO, Mike Parker.

As per Trian, after one short call with management, 

Disney rejected Nelson’s request for a board seat outright. Notably, Disney did not even allow Nelson to meet any directors prior to turning down his request until they flagged that it was a highly questionable decision to jump to a decision without hearing us out.

“While senior leadership of The Walt Disney Company and its Board of Directors have engaged with Mr Peltz numerous times over the last few months, the Board does not endorse the Trian Group nominee, and recommends that shareholders not support its nominee, and instead vote for all the company’s nominees,” Disney said.

To this statement, Trian responded that-

It doesn’t want to replace Bob Iger as chief executive. Instead, Trian said, it wants to work with Iger to ensure a successful CEO transition within the next two years.

And so the BATTLE continues.

Right before the 2023 annual meeting of shareholders, the firm is now resorting to a proxy fight to gain a seat.

And the recent fallout culminated in a 35-page analysis of the Disney firm by the Trian Partners.

What has Trian got to say about Disney’s performance?

Well, as per the report, Nelson doesn’t look happy with how things are at Disney. 

His observations about the firm seem to be quite critical. 

The highlight from the report confirms the same:-

1. As per the report, many of Disney's current problems are self-inflicted. Disney shares are currently trading at an 8-year low. Peltz said, had “lost its way resulting in a rapid deterioration in its financial performance.” 

2. Disney’s total shareholder return has consistently underperformed, the report says. Peltz has accused Iger of not doing enough during his long tenure at Disney even though he has been in charge of the company since 2000  with only a short respite from January - October 2022 (~10 months with Bob Chapek at the forefront).

3. Disney doesn't value its shareholder’s interest- Disney eliminated its dividend as it faced cash flow challenges caused by the COVID-19 pandemic. Disney has not provided a timetable for restoring the dividend beyond “achieving pre-Fox leverage levels,” which could take years.

4. Disney’s Succession Process is Broken- The report highlighted that Disney initially was confident of Bob Chapek, with Susan Arnold, The Chair of the board at Walt Disney, making the following statement- 

“ Bob Chapek is the right leader at the right time for The Walt Disney Company, and the Board has full confidence in him and his leadership team.”

The fact that Bob Chapek was abruptly fired five months after the Board unanimously agreed to extend his contract by three years suggests the Board lacks a robust CEO succession process.

5. Disney’s Fox Acquisition Has Not Delivered Promised Financial Benefits

It has been highlighted in the report that Disney materially overpaid for the Fox assets which created a massive incremental goodwill balance of ~$50bn. 

Not all is well at Disney

We have previously covered in my newsletter how not having a leadership pipeline is costing Disney a fortune due to constant succession change. Once again, Disney has announced former Nike CEO Mark Parker as its next chairman.

Disney is losing a lot of money. 

The company has also previously announced companywide cost-cutting measures in November, including a ban on essential work travel and a freeze on new hires for all but a few critical positions.

Iger upheld that hiring freeze when he returned to the helm of the company later that month.

So, a lot of what Trian is looking for – board change (particularly with former CEO Bob Chapek now off the board) and cost reduction – has either already happened or is in the process of happening.

And while all this was happening, what might have irked Peltz that

Disney’s executives were paid hundreds of millions of dollars in compensation packages which were not tied to the company's performance.

While Peltz thinks he can turn the fortunes of Disney back and provide a solution to the problem, what do you think?

Trian owns a stake worth nearly $1 billion in Disney, but given the media company’s size, that means the position is only about half of one per cent. 

While that modest stake and Peltz’s relative lack of media experience have put off some Wall Streeters, Trian’s counter is that they are seeking only one board seat and that Peltz’s consumer experience is a match for Disney’s considerable footprint across theme parks and merchandise.

Given the fact that whenever Nelson Peltz served on the board, that company outperformed the S&P by 900 basis point annually

Would you like to see Peltz at the helm of Disney? 

That's all for today!

And if you've got a moment, I’d love to hear what you thought of this edition of the newsletter. 

-Vipul