© Reuters. FILE PHOTO: Nike CEO Mark Parker speaks during a launch event in New York March 16, 2016. REUTERS/Brendan McDermid
By Uday Sampath Kumar and Yuvraj Malik
(Reuters) -Activist investor Nelson Peltz on Wednesday mounted a boardroom challenge at Walt Disney (NYSE:) Co, calling it “a company in crisis,” as he took aim at its succession planning, poor cost controls and unprofitable streaming business.
It is the second time in six months that an activist shareholder has mounted pressure on Disney, an entertainment giant with interests ranging from streaming and theme parks, to movie studios and television. Last September, billionaire Daniel Loeb reached a truce with Disney after pushing for changes. In November, the company brought back old boss Bob Iger as chief executive.
Peltz, a billionaire activist who operates via his Trian Partners hedge fund, called for Disney to cut costs and turn a profit at its Disney+ streaming business, which has been losing money despite expanding at a fast clip.
The move puts two strong-willed business leaders, Peltz and Iger, in potential conflict, and lays the groundwork for one of the most explosive proxy fights in years. Trian in a statement said it has tried to reach a resolution with Disney over recent months, but said Disney rejected a request to expand the board of directors by one member.
Peltz, however, said he does not want to push out Iger or break up Disney. He did not give a detailed plan for achieving his goals, many of which Iger already has set.
On Wednesday, Disney named independent director and Nike Inc (NYSE:) Executive Chairman Mark Parker as its next chairman, replacing Susan Arnold, who will not stand for re-election. Parker will also chair a newly created committee that will advise the board on CEO succession planning.
Disney shares rose 1.4% in extended trading. Its shares sank last year as losses deepened in its streaming business, and the price is now less than half the stock’s 2021 high.
“THE HARD TRUTH”
“Disney’s recent performance reflects the hard truth that it is a company in crisis with many challenges weighing on investor sentiment,” Peltz’s Trian Fund Management LP said in its statement, demanding accountability of the company’s money management and a reinstatement of its dividend by fiscal 2025.
Trian, which owns 9.4 million Disney shares valued at some $900 million – a roughly 0.5% stake – said Disney had failed at succession planning and has “over-the-top” compensation practices. Trian bought its Disney stake in the days following a lackluster quarterly earnings report by Disney.
Disney, Trian said, had overpaid for the assets of 21st Century Fox and bid aggressively for pay-TV giant Sky PLC.
The hedge fund also criticized the company’s Disney+ strategy. The business has became a global giant but lost a lot of money.
Peltz, who often presents himself as a partner with constructive advice for companies, fought a bitter proxy fight with Procter & Gamble (NYSE:) Co a few years ago and won a board seat. Last year, Trian built a stake in UK’s Unilever (NYSE:) Plc and burger chain Wendy’s (NASDAQ:).
Investment by Trian has typically been positive for companies’ stocks.
“For shareholders, regardless of whether or not Peltz wins his battle, his move seems to have made Disney’s management more aggressive in implementing improvements and fine tuning their strategy,” said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.
“I’m grabbing a box of popcorn to watch this show!” Schulman said.
Disney said Trian would file with the Securities and Exchange Commission on Thursday to elect Peltz for a board seat in opposition to the company’s nominees.
Disney said that while its senior leadership and board “have engaged with Mr. Peltz numerous times over the last few months, the board does not endorse the Trian Group nominee.”
Iger, who came back in November less than a year after retiring as chairman, has vowed to focus on cost cuts and profitability after the fledgling Disney+ streaming operation became a global giant but lost a lot of money. Disney had said it expects the business to break even by 2024.
Third Point’s Loeb had pushed Disney to spin off the ESPN sports television network, but later backed off from that demand, and pushed to accelerate the planned takeover of Hulu from minority-owner Comcast Corp (NASDAQ:).
Third Point, which also pushed Disney to refresh its board, reached a settlement in September that handed a seat to former Meta executive Carolyn Everson.