The battle for Disney: Magic Kingdom prepares for the battle with Nelson Peltz

A frenzy swept through Hollywood after Bob Iger returned to Walt Disney in late November in hopes that the veteran CEO would help his company – and the ailing entertainment industry at large – find its way back.

But behind the fanfare have been signs of taint on the Iger halo since his resignation in 2020, blemishes that activist Nelson Peltz is now putting at the heart of one of America’s biggest proxy battles in years.

Exhibit A in Peltz’s case is Iger’s $71 billion acquisition of 20th Century Fox by Rupert Murdoch in 2019, which the investor has portrayed as a rash boom-time deal leaving Disney $42 billion in debt and restricted its room for manoeuvre.

Peltz has also addressed Iger’s botched handling of his own succession, which has been so protracted that several promising candidates have left the company. Relations between Iger and his chosen successor, Bob Chapek, were notoriously strained and ended with Chapek’s impeachment last year.

These episodes from Iger’s past are some of the main arguments Peltz, known for a relentless $100 million campaign against Procter & Gamble, plans to use against one of America’s most celebrated corporate executives.

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

The hostile letter — and a pre-emptive board reshuffle by Disney — are the culmination of months of behind-the-scenes tensions. At stake is not only the media group’s strategy at a crucial juncture in the transition to streaming, but also the legacy of Iger himself.

After his bid for a Disney board seat was rebuffed Wednesday, Peltz didn’t go so far as to ask Iger to resign. But in his case to investors, he portrayed Disney as a “troubled” company with its stock trading near an eight-year low.

Peltz accuses Iger that his vaunted expansion of Disney’s empire has come at the expense of performance and margins. In a presentation titled “Restore the Magic”he points out that shareholder returns have been less than half those of the S&P 500 over the past decade.

While dealmaking has helped grow sales by nearly $24 billion to $83.7 billion over the past five years, Peltz said the cost of services and products has risen by two-thirds, and operating margins have nearly doubled halved and free cash flow is down 90 percent. The dividend, which has been paid continuously for more than half a century, has meanwhile evaporated during the pandemic.

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

Parade of the Little Mermaid and Prince Eric at Disneyland Paris
Nelson Peltz argues that the expansion of Disney’s empire has come at the expense of performance and margins © LAR Cityscapes/Alamy

Disney’s astute response to Peltz, who called it “one of the worst” examples of shareholder engagement he’s seen, could hardly have differed from the treatment of another activist investor over the past year: Third Point’s Daniel Loeb.

Disney officials characterized the talks as amicable with Loeb, who finally managed to appoint a veteran media veteran, Carolyn Everson, to his board last fall. Loeb dropped some other demands, such as his call for Disney to spin off the ESPN sports network.

In contrast, Disney plans to stand by Peltz’s claims, which disclosed his stake weeks after Loeb secured Everson’s appointment. “We will not back down,” said a person close to Disney. “We will fight him if he wants to fight.”

Peltz has taken issue with Disney’s current strategy, claiming its streaming plans are flawed, costs are spiraling out of control, and parking customers are being penalized with short-sighted price hikes to offset poor performance from the rest of Disney’s business.

But Disney insiders make short work of him, citing Peltz’s lack of media and technology experience. “We don’t see why he should be helpful on the board,” one said.

Peltz had planned to launch his salvo on Thursday, but Disney backed out a day earlier, announcing a board reshuffle and opposing Peltz’s request for a seat.

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

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

Arnold came under scrutiny last year when Chapek was embroiled in a chaotic row with the Florida governor over so-called “Don’t Say Gay” legislation, sparking an outcry from Disney’s LGBT+ employees. After a wave of negative publicity for Disney, Arnold extended Chapek’s contract — only to be abruptly fired in November.

Walt Disney employees and protesters during a rally against the Florida law
Disney got embroiled in a chaotic row over Florida’s so-called “Don’t Say Gay” legislation © Alisha Jucevic/Bloomberg

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

Iger isn’t expected to reveal many details about his strategy for the company until the company reports its earnings on Feb. 8. But he has already announced plans to reorganize a Chapek-era management structure that has drawn the ire of Disney studio executives. The company is also beginning to implement a cost reduction plan.

Disney insiders blasted Peltz for not providing a detailed plan of his own to boost performance. “It’s really surprising that there are reviews, many of which are inaccurate or silly, but there is literally no single solution,” said the person close to Disney. “Peltz has no plan.”

Peltz cites his three previous proxy fights — Heinz in 2006, DuPont in 2015, and P&G in 2017 — as proof he can work with companies to drive results. “Management’s views of Trian and Nelson Peltz have changed dramatically after we began working with them to increase shareholder value,” Trian’s presentation said.

But Disney insiders say his experience has no bearing on consumer companies like P&G.

“Peltz is a smart, successful investor and has a good track record in consumer goods brands,” said the person close to Disney. “But the idea of ​​selling soap and detergent is analogous to what Disney is doing, which is creating globally [intellectual property]is just not true.” The battle for Disney: Magic Kingdom prepares for the battle with Nelson Peltz

Adam Bradshaw

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