A buzz of excitement took over Hollywood after Bob Iger returned to Walt Disney at the end of November, with the hope that the veteran chief executive will help the company – and the ailing entertainment industry as a whole – find its way back.
But behind the fanfare, signs of tarnish have appeared in Iger’s halo since his resignation in 2020, activist Nelson Peltz’s blemishes are now at the center of one of the biggest proxy wars in the US of the year.
Exhibit A in Peltz’s case is Iger’s $71bn acquisition of 20th Century Fox from Rupert Murdoch in 2019, which investors described as a rash boom-time deal that left Disney with $42bn in debt, limiting room for manoeuvre.
Peltz has also seized on Iger’s botched handling of his own succession, which became such a drawn-out affair that some candidates promised to leave the company. The relationship between Iger and his chosen successor, Bob Chapek, was notorious and ended with Chapek being fired last year.
Episodes from Iger’s past are some of the core arguments that Peltz, known for his relentless $100m activist campaign against Procter & Gamble, is plotting against one of the most lauded executives in corporate America.
“As Disney faces a rapidly evolving media environment[ . . . ]we believe the company’s current problems are largely self-inflicted,” Peltz, whose firm Trian Fund Management has bought shares worth about $900mn, wrote to the Board this week.
The hostile letter – and a pre-emptive board reshuffle by Disney – is the culmination of months of behind-the-scenes tension. At stake is not just the media group’s strategy at a crucial point in its transition to streaming, but Iger’s own legacy.
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After his efforts to get a seat on the Disney board were rejected on Wednesday, Peltz stopped short of asking Iger to resign. But in his case for investors, he described Disney as a company in “crisis”, with its share price trading near an eight-year low.
Peltz’s charge against Iger is that the expansion of the Disney empire is tied to the cost of performance and profits. In a presentation titled “Recovering the Magic,” he pointed out that shareholder returns over the past decade have been less than half of those of the S&P 500.
While dealmaking helped to increase almost $ 24bn in revenue to reach $ 83.7bn over the past five years, Peltz alleged that the cost of services and products has risen by two-thirds, the operating margin has been almost halved and free cash flow has fallen by 90 percent. Dividends, which have been paid continuously for more than half a century, have evaporated during the pandemic.
“We believe Disney is at a crossroads: it can decide to fight the addition of one qualified board member” – namely Peltz – or “work together with Trian to create sustainable long-term value at Disney,” according to one slide.
Disney’s flinty response to Peltz, who described it as “among the worst” examples of shareholder engagement it has ever seen, is hardly dissimilar to the treatment of another activist investor last year: Third Point’s Daniel Loeb.
Disney officials considered the discussions cordial with Loeb, who eventually succeeded in placing a seasoned media veteran, Carolyn Everson, in the seat last fall. Loeb rejected several other demands, such as calls for Disney to drop its ESPN sports network.
In contrast Disney plans to stand firm on the request of Peltz, who opened the stock week after Loeb had secured the appointment of Everson. “We’re not backing down,” said a person close to Disney. “We will fight them if they want to fight.”
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Peltz reflected on Disney’s current strategy, admitting that its streaming plans were flawed, costs were out of control and park customers were being punished by short-term price increases to offset the performance of Disney’s other businesses.
But Disney insiders gave him little, pointing to Peltz’s lack of experience in media and technology. “We don’t know why they’re going to be helpful on board,” said one.
Peltz had planned to launch the salvo on Thursday, but Disney pulled out a day later by announcing a board reshuffle and opposition to Peltz’s request for seats.
That leaves Disney’s defense in the hands of Nike veteran Mark Parker, who will replace Susan Arnold as chairman.
Disney said Arnold would not seek re-election because of a 15-year term limit. But his departure has the potential to relieve Peltz of any significant attacks on Disney and its board.
Arnold had come under scrutiny last year because Chapek was involved in a fight with the governor of Florida over the so-called “Don’t Talk Gay” law, which led to protests from Disney’s LGBT+ employees. After a wave of negative publicity for Disney, Arnold extended Chapek’s contract – only to fire him abruptly in November.
In a statement, Parker said his top priority as chairman was to “identify and prepare a successful CEO successor” and that the process “has already begun”.
Iger is not expected to provide many details about the strategy for the company until after the company reports results on February 8. But he has announced plans to reorganize the Chapek-era management structure that has caught the attention of Disney studio heads. The company has also started implementing cost reduction plans.
Disney insiders blasted Peltz for not presenting his own detailed plan to improve performance. “It’s amazing how much criticism there is, a lot of it is inaccurate or twisted, but the truth is there’s no solution,” said a person close to Disney. “Peltz has no plans.”
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Peltz pointed to three previous proxy wars — Heinz in 2006, DuPont in 2015 and P&G in 2017 — as proof that he can work with companies to improve results. “Management’s view of Trian and Nelson Peltz changed dramatically after we began working together to increase shareholder value,” Trian’s presentation said.
But Disney insiders say their experience at consumer companies such as P&G is irrelevant.
“Peltz is a smart, successful investor with a good track record in commodity consumer brands,” said a person close to Disney. “But the notion that selling soap and detergent is the same as what Disney does, is making it global [intellectual property]it’s just not true.”