Analyst Note| Neil Macker |
Nelson Peltz and his fund, Trian Partners, kicked off a proxy fight with Disney over a board seat for the activist investor. The fund is concerned about numerous perceived issues at Disney, including weak governance, financial underperformance, and poor capital allocation. We suspect that the decision to offer a board seat to Third Point in September pushed the board to resist adding another activist to the lineup. Outside of handing Peltz his desired board seat, we believe this proxy fight was basically inevitable.
While not agreeing with all of Peltz’s objectives or issues, we do think Peltz’s perspective would add value to what has been an insular Disney board. We expect that he will continue to fight until the shareholder vote (likely in March) or he is placed on the board. We maintain our $155 fair value estimate.
In his presentation hosted at RestoretheMagic.com, Peltz outlines his previous successes and the fund’s six objectives. The first is to ensure a successful CEO succession within two years instead of replacing Bob Iger as of now. While this aligns with the company’s current public stance, we still believe that Iger will ultimately extend his stay once again. Trian also wants to cut CEO compensation, which has been relatively high over the last decade, a common complaint in the media industry.
Unlike Daniel Loeb at Third Point, Peltz is not interested in breaking up Disney by spinning out assets like ESPN but is for “reinvigorating the Disney flywheel.” Notably, Trian would turn Disney+ into a niche platform that acts as a secondary, rather than primary, distribution node for the firm’s core franchises. We don’t believe the firm could make this shift in the near term without taking a tremendous financial hit and losing customers, especially outside of the U.S., where it offers a deeper range of content. We view the Disney+ strategy as largely appropriate given the assets that the company owns and the streaming landscape internationally and in the U.S.