Trian Fund Management, which beneficially owns $3 billion in Disney stock, has submitted notice of its intention to nominate founding partner Nelson Peltz and former Disney chief financial officer Jay Rasulo as independent directors on the entertainment giant’s board at its 2024 annual meeting of shareholders.
In a statement, Disney said its governance and nominating committee would review Trian’s proposed nominees and provide a recommendation to the board. The company will file preliminary materials on its annual meeting with the U.S. Securities and Exchange Commission, which will include the board’s recommended slate of director nominees.
“Disney has an experienced, diverse, and highly qualified Board that is focused on the long-term performance of the Company, strategic growth initiatives including the ongoing transformation of its businesses, the succession planning process, and increasing shareholder value,” the company added.
Peltz and Trian argue that Disney has “woefully underperformed its peers and its potential,” noting that earnings per share in the company’s most recent fiscal year were lower than the EPS generated by the company a decade ago and over 50% lower than its peak EPS despite over $100 billion of capital invested. It also said that the margins of Disney’s direct-to-consumer business and its consolidated media operations “significantly lag peers despite Disney having scale and superior IP.”
“For shareholders, this subpar performance has destroyed value. Disney stock has underperformed the stocks of Disney’s self-selected proxy peers and the broader market over every relevant period during the last decade and during the tenure of each non-management director,” Trian continued. “Furthermore, it has underperformed since Bob Iger was first appointed CEO in 2005 – a period during which he has served as CEO or Executive Chairman (directing the Company’s creative endeavors in this role) for all but 11 months. Disney shareholders were once over $200 billion wealthier than they are now.”
The activist investor adds that Disney’s non-management directors on the board collectively own less than $15 million of the company’s stock and that Iger has sold more than $1 billion of his ownership stake built up through share-based compensation.
“As Disney’s largest active shareholder, we can no longer sit idly by as the incumbent directors and their hand-picked replacements stand in the way of necessary change, and peers and competitors continue to outperform,” Peltz said in a statement. “In our view, Disney’s Board has failed to fulfill its essential responsibilities – overseeing the development of an effective strategy, planning for orderly succession, aligning executive pay with performance, and ensuring accountability for operational execution. Shareholder-led board refreshment with focused and aligned directors who are accountable to the owners of the company is long overdue.”
Iger returned to Disney in November 2022 following the ouster of his successor turned predecessor Bob Chapek.
Since then, the company has embarked on a plan to cut $5.5 billion in costs, which has included 7,000 layoffs, removing select content from its streaming services and producing a lower volume of content. Iger proceeded to up that target by another $2 billion during Disney’s fourth quarter earnings call last month.
Additionally, 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 has announced plans for a $60 billion investment in Disney’s theme parks over the next decade.
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 three years ago during the COVID-19 pandemic.
Iger has said he will “definitely step down” as CEO when his contract expires at the end of 2026.
The initial announcement of the cost cuts in February prompted Peltz to drop a previous proxy fight. But now, he and Trian argue that the turnaround “does not appear to be materializing,” citing tens of billions in shareholder value lost, a meaningful drop in consensus EPS 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, in our view, is a Board that is too closely connected to a long-tenured CEO and too disconnected from shareholders’ interests,” Trian added. “The Board, we believe, lacks objectivity as well as focus, alignment, and accountability. “
While acknowledging that the recent appointment of James Gorman and Jeremy Darroch is a “step toward greater Board objectivity” and “a belated acknowledgement by the Company of the need for change,” Trian said the “reactive Board self-refreshment on the eve of a proxy contest is insufficient” because they were selected without shareholder input and seemingly do not own meaningful amounts of Disney stock.
“To resolve the malaise and crisis of confidence among Disney shareholders, the Board needs fresh perspectives from truly independent directors selected by the shareholders themselves,” Peltz added. “Jay and I have the strategic, operating, financial, and governance expertise to help Disney and are committed to working with the other members of the Board and management team to address the fundamental issues underlying the Company’s continued poor performance. There is much that can be done to revive Disney and restore the confidence of Disney shareholders, and Trian looks forward to discussing these opportunities with our fellow shareholders over the coming months.”
Rasulo spent three decades at Disney, serving as senior executive vice president and CFO from 2010 to 2015. During his tenure, Disney delivered compound annual returns for shareholders of approximately 27% and compounded EPS at a rate of approximately 20%, paid a consistent and generous dividend and its share price appreciated over 250%, according to Trian.
Prior to being appointed CFO, Rauslo served as chairman of Walt Disney Parks and Resorts Worldwide from 2005 to 2009 and president of Walt Disney Parks and Resorts from 2002 and 2005.
“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. With a shareholder mandate, Nelson and I look forward to helping the Board and management reorient the Company towards delighting its consumers again and driving significant value for its owners.”
Peltz’s latest push for a board seat at Disney is backed by former Marvel executive chairman Ike Perlmutter, who was let go from the company in March and granted Trian sole voting power over his Disney shares. Disney has said Peltz’s latest effort to obtain board seats for Trian is rooted in Perlmutter’s “longstanding personal agenda” against Iger.
According to a 13D filed with the U.S. Securities and Exchange Commission, Trian upped its Disney stake to 7.3 million shares during the third quarter of 2023, compared to 6.42 million shares during the second quarter. The filing also disclosed another 25.57 million Disney shares listed as an “other investment discretion.”
In addition to Perlmutter, the investment firm Ancora Holdings has publicly expressed support for Peltz. But another firm, Blackwells Capital, has come out in support for Disney, urging Peltz to end his “ego driven campaign.”
Shares of Disney, which are up 6.4% year to date and 0.5% in the past year, popped 2% during Thursday’s trading session.
