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The Fight for Disney: Magic Kingdom Prepares for Battle with Nelson Peltz

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A buzz of excitement rippled through Hollywood after Bob Iger returned to Walt Disney at the end of November, with the hope that the veteran chief executive would help his company – and the entertainment industry as a whole – find its way again.

But beneath the fanfare, signs of blemishes have appeared on Iger’s halo since he stepped down in 2020, blemishes that activist Nelson Peltz is now making the centerpiece of one of the biggest US proxy battles in years.

Exhibit A in the Peltz case is Iger’s $71 billion acquisition of Rupert Murdoch’s 20th Century Fox in 2019, which the investor portrayed as a rash deal in a boom period that saddled Disney with $42 billion in debts, limiting your room for manoeuvre.

Peltz also capitalized on Iger’s botched handling of his own succession, which became such a time-consuming affair that some promising candidates left the company. Relations between Iger and his chosen successor, Bob Chapek, were notoriously tense and ended with Chapek’s ouster last year.

Those episodes from Iger’s past are some of the key arguments that Peltz, known for a relentless $100 million activist campaign against Procter & Gamble, plans to mobilize against one of corporate America’s most lauded executives.

“While Disney faces a rapidly evolving media environment[ . . . ]we believe the company’s current problems are largely self-inflicted,” Peltz, whose firm Trian Fund Management bought a stake worth about $900 million, wrote to the board this week.

The hostile letter — and a preemptive reshuffle of the board by Disney — are the culmination of months of tension behind the scenes. At stake will be not just the media group’s strategy at a crucial point in its transition to streaming, but the legacy of Iger himself.

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After his bid to win a Disney board seat was rejected on Wednesday, Peltz stopped short of calling for Iger’s resignation. But in his case, for investors, he described Disney as a company in “disease,” with its stock price trading near eight-year lows. Shares rose 2.7 percent to $98.92 in New York trading on Thursday after the campaign news broke.

Peltz’s charge against Iger is that his vaunted expansion of the Disney empire cost him performance and margins. In a presentation titled “Restore the Magic,” he points out that shareholder returns over the last decade are not even half those of the S&P 500.

While the deals helped add nearly $24 billion in revenue, rising to $83.7 billion over the past five years, Peltz claimed that service and product costs have risen by two-thirds, operating margins have dropped by nearly half, and the free cash flow dropped by 90%. The dividend, paid steadily for more than half a century, however evaporated during the pandemic.

“We believe Disney is at a crossroads: it can decide to fight the addition of a qualified board member” – namely Peltz – or “work together with Trian to create sustainable, long-term value at Disney,” according to with a slide.

The Little Mermaid and Prince Eric at Disneyland Paris parade
Nelson Peltz argues that expanding Disney’s empire cost performance and margins © LAR Cityscapes/Alamy

Disney’s harsh response to Peltz, which described it as “one of the worst” examples of shareholder engagement it has seen, could hardly be more different from its treatment of another activist investor last year: Daniel Loeb of Third Point.

Disney officials characterized the discussions as friendly with Loeb, who eventually managed to get a seasoned media veteran, Carolyn Everson, on his board last fall. Loeb abandoned some other demands, such as his request that Disney break up sports network ESPN.

Disney, on the other hand, plans to stand firm on the demands of Peltz, who revealed his involvement weeks after Loeb secured Everson’s nomination. “We are not going to back down,” said a person close to Disney. “We will fight him if he wants to fight.”

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Peltz is festering at Disney’s current strategy, claiming its streaming plans are flawed, costs are out of control and park customers are being punished with short-sighted price increases to make up for the poor performance of the rest of Disney’s business.

But Disney pundits are taking him lightly, pointing to Peltz’s lack of media and technology experience. “We don’t know why he would be useful on the board,” said one.

Peltz planned to launch his salvo on Thursday, but Disney pulled out a day early, announcing a board reshuffle and its opposition to Peltz’s request for a seat.

That leaves Disney’s defense in the hands of Nike veteran Mark Parker, who will replace Susan Arnold as president.

Walt Disney employees and protesters during a demonstration against Florida's 'Don't Say Gay' bill
Disney has been embroiled in a messy row over Florida’s so-called ‘Don’t Say Gay’ legislation © Alisha Jucevic/Bloomberg

Disney said Arnold was not running for re-election because of a 15-year term limit. But his departure potentially deprives Peltz of a significant line of attack against Disney and its board.

Arnold attracted attention last year when Chapek was involved in a complicated row with the governor of Florida over the so-called “Don’t Say Gay” legislation, which sparked protests from Disney’s LGBT+ employees. After a flurry of negative publicity for Disney, Arnold extended Chapek’s contract – only to abruptly fire him in November.

In a statement, Parker said his top priority as chairman would be “to identify and groom a successful CEO successor” and that the process “has begun.”

Iger is not expected to give too many details about his strategy for the company until the company reports its results on Feb. 8. But he has already announced plans to overhaul a Chapek-era management structure that has drawn the ire of Disney studio heads. The company is also starting to implement a cost reduction plan.

Disney insiders criticized Peltz for not coming up with a detailed plan of his own to improve performance. “It’s really surprising that there are reviews there, many of which are inaccurate or distorted, but there is literally no solution,” said the person close to Disney. “Peltz has no plans.”

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Peltz points to his three previous proxy battles – Heinz in 2006, DuPont in 2015 and P&G in 2017 – as evidence he can work with companies to drive results. “Management’s view of Trian and Nelson Peltz changed dramatically after we began working with them to increase shareholder value,” states Trian’s presentation.

But Disney experts say their experience at consumer companies like P&G is irrelevant.

“Peltz is a smart and successful investor and has a good track record in commodity consumer brands,” said the person close to Disney. “But the notion that selling soap and detergent is analogous to what Disney does, which is creating [intellectual property]it is simply not true.”

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