Trian Fund Management, a major shareholder of The Walt Disney Company, is looking to elect their CEO to Disney’s Board of Directors to try and solve what they see as some major issues with the current operation of the company. Additionally, the firm has launched the site RestoreTheMagic.com to present its case.
What’s Happening:
- Trian will file a preliminary proxy statement with the Securities and Exchange Commission tomorrow for the election of Nelson Peltz, its Chief Executive Officer and Founding Partner, to Disney’s Board of Directors at the 2023 Annual Meeting of Shareholders.
- Ahead of that, RestoreTheMagic.com has launched, offering insight into what Peltz’s issues with Disney are.
- Trian argues that Disney should be well positioned to navigate the ongoing transition from legacy content distribution channels to streaming, however recent share price and operating performance have been disappointing.
- Disney shares are currently trading near an 8-year low despite the company’s recent decision to re-hire Bob Iger as CEO.
- A point likely to strike a chord with Disney Parks fans is how Trian fears Disney is “over-earning” in their domestic theme parks in order to subsidize streaming losses.
- “Disney may believe that price increases and “nickel-and-diming” of Cast Members and other costs is good for the bottom line… however, we suspect it is short-term thinking that puts the brand value and long-term health of the business at risk.”
- Trian believes that Disney’s recent performance reflects the hard truth that it is a company in crisis with many challenges weighing on investor sentiment.
- They believe that Disney’s current problems are primarily self-inflicted and need to be addressed immediately, such as:
POOR Corporate Governance
- Failed succession planning
- “Over-the top” compensation practices
- Minimal shareholder engagement, including an apparent unwillingness to fully engage
constructively with Trian
POOR Strategy & Operations
- Flawed Direct-to-Consumer (“DTC”) strategy struggling with profitability, despite reaching similar revenues as Netflix and having a significant IP advantage
- Lack of overall cost discipline
- Overearning in the Parks business to subsidize streaming losses
POOR Capital Allocation
- Since 2018, Disney’s EPS has been cut in half despite $162bn spent on mergers and acquisitions (“M&A”), capital expenditures (“Capex”) and content – approximately equal to Disney’s entire current market capitalization
- Management, in Trian’s view, has shown poor judgment on recent M&A efforts including overpaying for the 21st Century Fox assets and bidding aggressively for Sky plc
- Increased financial leverage and deteriorating cash flow resulting in the elimination of the dividend that had been paid for 50+ years, even as COVID receded and Parks profitability surpassed historical levels
What They’re Saying:
- Nelson Peltz said: “Disney has an incredible legacy as one of the leading and most successful consumer entertainment companies in the world, having built some of the most celebrated consumer brands and an unparalleled content portfolio that resonates with audiences of all ages across the globe. But in recent years, the Company has lost its way resulting in a rapid deterioration in its financial performance from a consistent dividend-paying, high free cash flow generative business into a highly leveraged enterprise with reduced earnings power and weak free cash flow conversion.”
- Peltz continued: “Disney has enormous potential, but today is struggling with numerous challenges and must act with urgency to accelerate profitability in its DTC business. As a highly engaged shareholder serving on Disney’s Board, my goal would be to work collaboratively with Bob Iger and other directors to take decisive action that will result in improved operations and financial performance, enhanced shareholder value and a robust succession planning process that will set the stage for sustainable growth over the long term. Trian has studied Disney’s business for over a decade, and we are confident that as an independent voice I can add significant value in the boardroom and represent the interests of all Disney shareholders.”
Members of the Laughing Place team discussed the presentation from Nelson Peltz / Trian Partners in an LPTV Live Update, which you can watch below:
For more on just what Trian is trying to do to “fix” The Walt Disney Company, visit their newly set-up website, RestoreTheMagic.com.