Disney’s Board Battle Picks Up Steam But This Time With New Wrinkles

Summary:

• Disney’s board has again come under siege from an activist investor group looking to shake things up this April and “restore the magic” after a shaky period for the company.
• This time Trian Partners is the primary force moving the bid forward but aiming to come at it from a different approach than before.
• Trian has enlisted a former Disney executive as a partner and is leaning into a number of timely questions around CEO Bob Iger and his ideas.
• It’s a busy time for Disney with a massive expansion into sports planned, a revamp of its film pipeline in play and the need to create an Iger succession plan.
• Iger is no stranger to activist tactics and is largely brushing off their attempts, especially since he now holds support from Walt Disney’s heirs and is seeing a stock turnaround.

It seems to be a tale as old as time.

Once again Disney’s (NYSE:DIS) board has come under siege from an “activist investor” looking to shake things up and once again it falls to CEO Bob Iger to quell the resistance with some type of Jedi mind-trick. Yet this time it hits a bit different and it may be harder for Iger to ward off with a simple wave of the hand.

First as always, some background.

If you follow Disney in the market, this is not exactly a new scenario and not an entirely new challenger to the throne. During his first tenure as topper Iger routinely had to face activist investors as did Bob Chapek after him.

It’s now come full circle again.

Trian Partners, led by Nelson Peltz, is once again making a play to as they say “restore the magic” but this time he’s brought former Disney Chief Financial Officer Jay Rasulo along with him. Together the pair are determined to right the ship (as they see it) and what makes them more dangerous to Iger than in the past is some of their points and suggestions aren’t as far fetched.

I said some… not all.

What Peltz and Rasulo are doing is smart in that they are saying out loud what several people have been thinking about with Disney’s plans, but the problem is that their solution is an equally mixed bag.

Chief among the duo’s suggestions – outlined in a new 130-page document put out this week – are problems around Disney’s sports push, linear networks and the quality of its films, among others.

Let’s take that in order and start with the sports push because it’s the biggest foothold for Trian. This has been an area of contention with some in the investment community and the entertainment industry. Nobody is disputing the value sports brings to the company’s portfolio but it is more how that portfolio is structured.

It’s a fair point.

As discussed in past pieces, Disney was right to double down on sports. That view is not being challenged because it’s a proven money-maker and through its ESPN connection has access to virtually all the major sports leagues, giving it a strong competitive edge. What Trian is latching onto is the suggestion Disney is doing too much and over-thinking the approach.

Trian is arguing that we should be skeptical of ESPN’s viability as a stand-alone direct-to-consumer product and instead should be focusing on maximizing its value through ESPN+. Add in the joint venture with Fox and WBD and in some ways it also becomes is a too much, too fast argument.

I tend to agree.

For me though it’s more about the uncertainty of the joint venture. We don’t have any details about it other than the three main partners. There’s no price point, offering list or even a name… let alone an explanation how you can be a real “one-stop shop” for sports fans when you exclude Paramount and Comcast’s (CMCSA) offerings which include everything from soccer to golf to NASCAR to half of the NFL teams.

And then there are the reports (that I covered last month) that Disney and NFL and teaming up in a deal that put NFL Studios, NFL Network, RedZone and streaming under the Disney umbrella. That’s a game-changer in itself and all of this combined leaves a lot to the imagination and that’s not an option for some people who are heavily invested here. If anything those deals I previously referenced/covered now play an even bigger role in the grand scheme.

I may be looking at it deeper and different than Trian seems to be, but I’m also not the only one and that’s the point. Trian has latched onto the doubt in the space (which has only grown since last month’s news) around Disney’s roadmap and is seizing on it.

Beyond the sports side, the team wants to go further and suggests merging Hulu into Disney+, re-evaluating the value of Hulu’s Live TV business and “right-size” the studio’s business and offerings (specifically it sounds like in the linear space).

And then you have the IP problem where the product from some of its biggest franchises has seemingly gotten stale and key brands have been over-exposed. To be fair, Disney itself has acknowledged issues there and are taking steps to fix it, but the issue is these movies takes years to make and it’s not a quick fix.

Films like Lightyear, Strange World and Wish had glaring issues that should have been addressed in pre-production, not prior to launch. All under-performed for a variety of reasons, but chief among them was audiences felt like they had seen something like it prior. There was no real value added and in the case of Lightyear. Audiences were genuinely confused what it was supposed to be and how it fit into the massively popular and profitable Toy Story franchise.

Some want to point to “wokeness,” but in many cases it really was just bad quality.

Although what’s important to recognize is Trian’s qualms aren’t exactly new…there’s been a pattern that pre-dates Iger’s return. What makes this time different is Peltz has Rasulo as his partner and that adds some additional credibility. Rasulo was with Disney through 2015 before leaving after being passed over for COO (in favor of Tom Staggs) and as a possible CEO successor.

Speaking of “successors,” another element of Peltz’s plan is spotlighting the uncertain succession plan for Iger who was only supposed to stay on for a year but now will be at the helm much longer. What better way to showcase the lack of hierarchal structure than by teaming with someone who knows it all too well and was a player in Disney’s internal Game of Thrones type battle?

These areas are hot topics among investors and among some of the company’s more frustrated shareholders. Peltz is playing to them and saying what they want to hear.

What Trian is doing is taking its traditional complaints, adding some new elements to it and re-packaging it as a whole. The idea here is to strike while Disney is still in stealth mode and putting together the various elements of its plans.

The problem for Peltz though is that while he’s doing a good job of hitting the sore spots, you have places like Morgan Stanley citing (on March 3) “realistic optimism” in Iger’s approach and a stock price that’s rebounding. The other issue is some of the arguments have not held up as well as others and many are ones Disney’s been fairly vocal about discussing.

Peltz has also seemed to fold in suggestions that have been raised before by himself and others that were simply non-starters – including the ever-popular “let’s team with Netflix” as a bundle partner.

There’s seemingly a new Disney and Netflix rumor every week – usually about one company buying the other and it has gotten tiring. Overall, Netflix has no reason to team with Disney for a variety of reasons, let alone for ESPN which trades in the type of live sports Ted Sarandos and company have gone out of their way to avoid. You also get the feeling “right-sizing” is code for divesting in the non-ESPN linear channels in Disney’s stable, which Iger seems to have tried to do but pulled back when he determined the value wasn’t there.

They also aren’t alone in this fight as fellow activist investor group Blackwells Capital has also been making noise. Granted their suggestions seem to be even more off-center as one was for Disney to lean into AI to create new characters – which inherently goes against Disney’s core model and steps right into an area that is a Hollywood hornet’s nest at the moment.

Compounding things for Iger is that previously he’s given these activists some attention in an attempt to placate them, but this time he hasn’t and recently noted them to be a “distraction.” The company even put out a somewhat tongue-in-cheek “how-to” video for its investors about how to vote using its Professor Ludwig Von Drake character as a guide. Both things likely not to cool any tensions.

However, Iger knows the position he’s in and that may explain the change in approach. He’s seeing a positive tide shift and he doesn’t have time to play this game and keep steering the ship. He also may feel more empowered as the heirs to both Walt Disney and his brother Roy have come out in favor of him, which has not always been the case.

It’s an interesting power grab that has gone on a lot longer than past ones have been allowed to continue and will now likely go right up until the board vote on April 3.

To borrow a line from Star Wars – “Always in motion is the future.”

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