The Disney-Nelson Peltz Proxy Battle, Explained

Activist investor and Trian Fund Management founder Nelson Peltz’s proxy fight with Disney is heating up as the House of Mouse has sought reinforcements from shareholders ValueAct Capital and Blackwells Capital.

According to Disney’s latest proxy statement, Thursday marked the deadline for any shareholder who wanted a board nomination or other business considered at the company’s 2024 annual meeting, which is expected to take place in the spring.

Expect a feisty one. TheWrap broke down the corporate intrigue and its major players.

What’s a proxy fight?

A proxy fight is when shareholders join forces to try to pressure a company’s management or board of directors to make changes using rules of corporate governance. That pressure is normally applied by gathering enough shareholder proxy votes to win a vote for corporate level change. A proxy fight strategy is also common in hostile corporate takeovers.

Prior to going the route of a proxy fight, shareholders could appeal to a company’s board directly to express their dissatisfaction with a specific decision by management.

Disney extended an offer for Trian to meet with its board but informed the firm that it was turning down its request for board representation, including for Peltz.

What does Trian want?

Trian, which launched its first proxy fight against Disney last January, is pushing for changes at Disney, including a plan for future leadership.

Peltz wants Disney’s board to develop a succession plan for CEO Bob Iger, who returned to the company as chief executive in 2022 after previously serving in the post for 15 years and retired in 2026. The investor also wants Disney to align compensation with performance, cut more costs and reinstate Disney’s dividend by fiscal year 2025.

Last February, Peltz dropped his proxy fight after Disney announced a plan to cut $5.5 billion in costs, which have included 7,000 layoffs, the removal of select content from its streaming services and a diminished content output. Iger raised that target by another $2 billion to $7.5 billion during Disney’s fourth quarter earnings call in November.

Peltz and Trian argue that Disney has “woefully underperformed its peers and its potential” and that its turnaround “does not appear to be materializing.” They cite tens of billions of dollars in lost shareholder value, a meaningful drop in consensus earnings-per-share estimates for fiscal years 2024 and 2025 and studio content that “continues to disappoint consumers, slowing the speed of the flywheel and threatening future earnings growth.” More generally, Trian said that Disney “appears no closer to adequately addressing the compensation misalignment, governance, and succession issues that have plagued the Company for decades.”

The root cause of Disney’s underperformance, Trian added, “is a Board that is too closely connected to a long-tenured CEO and too disconnected from shareholders’ interests,” and that “lacks objectivity as well as focus, alignment, and accountability.”

Disney stock, which hit a 52-week low of $78.73 per share in October, has rebounded $90.56 per share as of Thursday’s close, but remains off the stock’s 52 week high of $118.18 per share. The company’s market capitalization currently sits at $165.75 billion, about half its $328.02 billion market cap at the end of 2020.

How is Nelson Peltz trying to gain more influence?

Trian and Peltz have an approximately $3 billion ownership stake in Disney. Much of that influence comes in the form of shares from former Marvel Entertainment chairman Ike Perlmutter.

According to a filing with the U.S. Securities and Exchange Commission, the firm raised its Disney stake to 7.3 million shares during the third quarter of 2023, from 6.42 million shares during the second quarter. The filing also disclosed another 25.57 million Disney shares listed as an “other investment discretion.” Disney has a total of 1.83 billion shares outstanding.

In October, Perlmutter, who aided Peltz in his first proxy fight and was let go by Disney as part of cost cuts in March, granted sole voting power over his shares in the company to Trian and Peltz, calling them a “constructive voice for Disney’s shareholders” that can help leadership “better navigate the company’s challenges and opportunities.” He cited their “strong operating and strategic capabilities.”

In a statement to TheWrap at the time, Perlmutter said that “as someone with a large economic interest in Disney’s success, I can no longer watch the business underachieve its great potential.”

Perlmutter, who acquired Disney stock in 2009 following the Marvel acquisition, said he has not sold any shares and has added to his holdings over the years.

“Increasing the value of my Disney holdings will also result in increasing the amount that my wife and I will be able to provide to the leading hospitals, medical research institutions and other charities to which we plan to leave the vast majority of our wealth,” he added.

Enter Jay Rasulo

Trian has enlisted the help of former Disney chief financial officer Jay Rasulo, who along with Peltz has been nominated for a seat on the company’s board. Rasulo, who was once seen as a potential heir apparent to Iger and was ultimately passed over for the chief operating officer role, spent three decades at Disney, serving as president of Walt Disney Parks and Resorts from 2002 to 2005, chairman of Walt Disney Parks and Resorts Worldwide from 2005 to 2009 and senior executive vice president and CFO from 2010 to 2015.

“The Disney I know and love has lost its way,” Rasulo said in a statement. “As independent voices in the boardroom, Nelson and I are confident that the combination of my decades of experience at Disney, Nelson’s significant boardroom skills and history of driving positive strategic change, and our combined consumer brands expertise and financial acumen, will be additive to the Disney Board.”

In addition to Perlmutter and Rasulo, Peltz has gained an ally in Ancora Holdings. The investment firm, which has approximately $8.7 billion in assets under management, owned more than 60,000 Disney shares as of September, according to FactSet.

“We believe Disney is saying the right things about restructuring and transforming the enterprise. Nonetheless, the addition of a shareholder representative or investor-designated directors to the board can help ensure that these efforts are carried out in the most effective way,” Ancora Holdings Group Chairman and CEO Frederick DiSanto and Ancora Alternatives President James Chadwick wrote in a letter to Disney in December. The executives encouraged Disney’s board to “pursue a viable compromise” with Trian and Peltz.

What is Disney doing to respond?

Since February, Disney has taken on many strategic initiatives in an effort to address Peltz and Trian’s concerns.

In addition to cost-cutting efforts, Disney is currently on the hunt for strategic partners to help turn ESPN into a fully-direct-to-consumer offering, targeting a 2025 launch. The company has also launched a beta version of a combined Disney+ and Hulu app, which will officially roll out in March, and said it will invest $60 billion in Disney’s theme parks over the next decade. And Disney has reportedly signed a nonbinding term sheet to sell a majority stake in its India operations to billionaire Mukesh Ambani’s Reliance Industries.

Separately, the company declared a cash dividend of 30 cents per share for the second half of fiscal year 2023, which will be payable on Jan. 10 to shareholders of record as of the close of business on Dec. 11. The payout marks the first since the dividend was halted in 2020 during the COVID-19 pandemic.

Disney has also been making changes related to its corporate governance. The entertainment giant recently amended its bylaws to increase transparency around business proposals and director nominations from shareholders. It expects to file preliminary materials for the 2024 annual shareholders meeting with the Securities and Exchange Commission, which will include the Disney board’s recommended slate of director nominees.

In November, Disney’s board of directors appointed two new members: Morgan Stanley chairman and CEO James Gorman and Sir Jeremy Darroch, a veteran media executive and former group chief executive of Sky. Darroch’s appointment is effective Jan. 9 and Gorman’s is effective Feb. 5. The appointments will temporarily increase the board from 11 members to 13. Disney board member Francis A. deSouza will not stand for reelection.

Iger, who has extended his contract through the end of 2026, has also said he will “definitely step down” at the end of that term, with a “robust” process currently underway to find a successor.

The company has also tapped former PepsiCo chief financial officer Hugh Johnston as its new CFO, replacing Christine McCarthy who stepped down to take family medical leave in June. Johnston, who had served as Pepsi’s CFO since 2010, was a key player in the snack and beverage maker avoiding a potential proxy fight with Peltz and Trian, when the activist investor called on the company in 2013 to either merge with its rival Mondelez or split into two businesses. In 2015, Pepsi added former Heinz CEO and Trian adviser Bill Johnson to its board. Trian sold its position in Pepsi the following year.

Elsewhere, ValueAct Capital, led by Mason Morfit, entered into a confidentiality agreement with Disney on Wednesday that will allow the firm to consult on strategic matters, including through meetings with the board of directors and management. ValueAct, which has not disclosed the size of its stake in the entertainment giant, reportedly began building it during the Writers’ Guild of America and SAG-AFTRA strikes.

The firm, which has experience investing in media and technology companies navigating significant business transformations — including at Spotify, The New York Times, 21st Century Fox, Nintendo, Microsoft, Adobe and Salesforce — also said it would support the Disney board’s recommended slate of nominees for election at its 2024 annual meeting.

Blackwells Capital, which has publicly thrown its support behind Disney’s turnaround efforts and previously called on Peltz to end his “ego-driven” proxy battle, has also nominated former Warner Bros. and NBCUniversal executive Jessica Schell, Tribeca Film Festival co-founder Craig Hatkoff and TaskRabbit founder Leah Solivan for election to Disney’s board. The firm owns approximately $5 billion worth of Disney stock.

“We call on Mr. Peltz to end his peacocking so that Disney can focus on its bright future, and not be dragged backward in time,” Blackwells chief investment officer Jason Aintabi said in a statement. “Disney’s current leadership is invaluable to its shareholders, and our three exceptional candidates are being nominated along with a business proposal specifying that any incumbent director outvoted by Blackwells’ nominees be immediately added back to the Board following the 2024 Annual Meeting. This campaign provides shareholders a necessary alternative to what would otherwise be a solipsistic sideshow.”

Disney’s governance and nominating committee, which evaluates director nominations, has said it would review Blackwells and Trian’s nominees and provide a recommendation to the board as a part of its governance process.

Could Peltz and Trian win?

Peltz and Trian will likely have an uphill battle to winning board seats given that the majority of proxy fights are unsuccessful.

Time will ultimately tell if Disney shareholders vote to reject Peltz and Rasulo at the annual meeting or decide to bring them on board as the company navigates a difficult environment plagued by a declining linear business, an unprofitable streaming segment and struggles at the box office.

Peltz, 80, currently serves as the non-executive chairman of The Wendy’s Company and a director of Unilever PLC and Madison Square Garden Sports Corp. Other companies where he has previously served as a board member include Janus Henderson Group plc, Invesco Ltd., Procter & Gamble, Sysco Corporation, Legg Mason, Inc. and Mondelez International.

Jeffrey Sonnenfeld, CEO of the Chief Executive Leadership Institute at the Yale School of Management and a longtime critic of Peltz, told TheWrap in November that Iger’s turnaround effort has not been given enough time.

“A turnaround CEO needs two to two-and-a-half years to complete the job and a distraction in the middle of it is just a time-consuming diversion,” Sonnenfeld said.

A January 2023 analysis conducted by Sonnenfeld and CELI research director Steven Tian previously found that more than half of the companies Peltz and his firm targeted underperformed the S&P 500, in both share price and total shareholder returns, while he was on their boards. Sonnenfeld and Tian also pointed out that Peltz has been downsizing after shuttering a fund in the United Kingdom following a campaign from activist investors.

“Where’s the track record to say that he adds value?” Sonnenfeld said. “He adds distraction like a dripping faucet.”

The post The Disney-Nelson Peltz Proxy Battle, Explained appeared first on TheWrap.