The Journal. - The Battle Over Disney’s Board

Episode Date: April 2, 2024

Disney's business has been struggling in recent years, and there's a fight over how to fix it. On one side is Nelson Peltz, an activist investor, who is campaigning for a seat on Disney's board of directors. On the other side is CEO Bob Iger, who doesn't want Peltz anywhere near his company. WSJ’s Robbie Whelan explains who might win and what it could mean for the iconic brand. Further Reading: -Disney Winning Proxy Fight Against Trian With More Than Half of Votes Cast  -Nelson Peltz Wins Key Endorsement in Disney Battle  -Nelson Peltz Fights Disney—and Turmoil at His Own Fund  Further Listening: -The Troubled Second Act of Disney CEO Bob Iger  -Disney Wars: Attack of the Activist Investor  Learn more about your ad choices. Visit megaphone.fm/adchoices

There's a big vote coming up tomorrow for one of America's most iconic companies. It's election day for Disney. It's the most important election day they've had in a very long time. Our colleague Robbie Whelan covers the Walt Disney Company, and he's been watching the race.

This election is about who will sit on Disney's board of directors. Why do boards of directors matter that much? Oh, I'm glad you asked, Ryan. Boards of directors are extremely powerful and influential, and especially if you are a big company. Typically, when it comes to expansions, big initiatives, M&A deals, the board of directors have to meet and deliberate and vote on it.

Disney's board currently has 12 directors. And there's one person who desperately wants one of those seats. Nelson Peltz, the activist investor. I don't know if Nelson Peltz would say greed is good, but he actually did say something a few weeks ago in an interview where he said, what's the use of being a billionaire if you can't be a bully? Pelts wants to shake things up at Disney, a company that's been having a rough couple of years. Disney has a number of huge challenges sitting in front of it right now, especially how to make

streaming profitable, how to get their studio, their movie studio, back to a position of dominance and start making great films again after a string of flops. And then furthermore, just how to get their studio, their movie studio, back to a position of dominance and start making great films again after a string of flops. And then furthermore, just how to, where to go next with their theme park business, how to expand that. So it's not going to be an easy road from here. But there's one person at Disney who really doesn't want Pelts on the board.

Disney's CEO, Bob Iger. And he's launched a counter campaign to keep pelts out. So how close is this fight? So if you'd asked me that a month, month and a half ago, I would have said, it's really looking pretty strongly

like Disney is going to win. But now, after a couple of developments that I'll tell you about, we got ourselves a horse race. Now, with only one day to go and more than half the votes in, one side seems to be pulling ahead. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Tuesday, April 2nd. Coming up on the show, the fight to control Disney. Attention all soccer fans. We'll see you next time. and diverse cultures. You'll love it so much you'll want to extend your stay beyond the matches.

Get the ball rolling on your soccer getaway. Head to visittheusa.com. So who is Nelson Peltz? Nelson Peltz is an 81-year-old investor who lives in Palm Beach, Florida. He's originally from Brooklyn, New York, and he has a very long and storied history in American business. Peltz is what's called an activist investor. The activist investor playbook is pretty simple. You buy a bunch of stock in a company, push for changes that cause the stock to go up, and then walk away with a tidy profit. He says that he's a constructivist. He likes to work closely with companies and make them better.

He claims to love great American brands. He's been involved with companies like DuPont and Unilever, Wendy's. And Disney. Nelson Peltz's hedge fund, called Triane Partners, owns hundreds of millions of dollars worth of Disney shares. And in 2022, those shares were not doing well. Disney World appears to be losing some of its magic. Let's talk about these streaming numbers.

I mean, they're bad and losing over a billion bucks. Recent animated films like Disney and Pixar's Lightyear flopped at the box office. Peltz first took a run at Disney starting in the summer of 2022. Basically, he was looking at a company whose stock was really in the tank. Disney's stock had fallen from around $200 a share to below $100. So Peltz started calling up board members at Disney and he said, look, why don't you add me to the board? I have a lot of experience in cost cutting, in restructuring companies and making them more efficient. I can help here, guys. This was the beginning of Peltz's first attempt to get on Disney's board. And the board kind of said, thanks, but, you know, go pound sand.

You know, it was sort of, he didn't get a very warm welcome from the board at that point. A few polite no thank yous weren't enough to make Peltz give up. He started trying to force his way in. He started trying to force his way in. By the fall of 2022, he had actually officially launched a proxy campaign against Disney. And so he formally filed to join Disney's board and he nominated himself to join the board at the company's next annual meeting.

And what were his main demands at that point? His main demands were that Disney cut a lot of costs and a lot of that money was being spent in ways that Peltz felt were inefficient. He wanted Disney to cut spending. He wanted him to lay off hundreds or thousands of employees. And he was upset with the board and its performance. He was looking at the numbers and discovering that Disney's total shareholder return had suffered under the current board as well. While Peltz was pounding at the door, Disney was dealing with other problems. Namely, a succession plan that hadn't worked out.

Bob Iger, who'd been CEO for many years, retired. But when his successor struggled, the board of directors asked Iger to come back. And when he did come back, he promised to make changes. He announces, the first thing I'm going to do is I'm going to cut $5 billion from Disney's budgets, and I'm going to eliminate up to 7,000 positions at the company. The market immediately responded, the stock price went up, And Nelson Peltz immediately backed off. He said, OK, that's sort of what I was looking for. Thank you, Bob.

I'm going to back off. I'm going to go away. I'm going to end this proxy campaign. But he said, I'm going to keep an eye on this company. And if the changes you're making, if I don't see them taking effect and kind of, you know, moving the company in the right direction, and if I don't see the stock responding in a positive way, you can be sure that I'm going to come back and I'm going to attack you again.

Peltz's effort to get onto Disney's board of directors was over, at least for the moment. Peltz goes back to Palm Beach, but as the summer progresses, we've reported this. I mean, we've talked to people who know about his thinking. And he started to see, first of all, the stock fell to a nine-year low. So the changes that Iger put in place did not have lasting effects on the stock price in a positive way. Disney isn't a fun ride for investors right now.

Disney shares falling sharply after earnings down almost 9%. One of the worst performers in the Dow today, looking at losses of just about 3.5%, on track to close at the lowest level since 2014. So Peltz got very worried about that. Because, of course, at the time, he still owned something like $600 million worth of Disney shares. And he had reason to be worried that his investment might continue to lose value. And so Peltz launched another campaign. He called it Restore the Magic.

Is Nelson Peltz a zombie? What do you mean a zombie? I mean, like, he just keeps, just when you think that he's dead, he keeps coming back. Okay, so a couple things to unpack there. He did say when he called off that first proxy fight against Disney that if things didn't go the way he'd hoped, if performance wasn't up to snuff, he would consider coming back.

So I don't know if he ever was dead. I don't know if I'd call him a zombie activist. I'd call him a very persistent one. He's sort of more like the Terminator, saying, I'll be back. Yes, I'll be back. Yeah, that's him. Nelson Terminator saying, I'll be back. Yes, I'll be back. Yeah, that's him. Nelson Peltz, I'll be back.

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Do what moves you. Live passionately. Drink responsibly. Copyright 2024. Bacardi, its trade dress and the bat device are trademarks of Bacardi and Company Limited. Rum 40% alcohol by volume. Last November, Peltz launched his second proxy campaign to get a seat on Disney's board.

His arguments are pretty much the same as before. He thinks the board has failed to deliver strong returns to investors. And on top of that, there's still this issue of succession. Iger is 73 years old and says he plans to step down when his contract expires in 2026. They haven't been able to find a proper successor in an orderly way for Bob Iger. They don't know who the next CEO is going to be. And Disney's had succession problems for years, but you've got to come up with a workable plan for who's going to succeed the CEO. Disney has said that it's conducting a succession planning process

and that naming a new CEO is a top priority. Once again, Peltz would need to convince Disney shareholders to vote him onto the board. But this time, he had a secret weapon. Another rich guy who has a lot of Disney shares and therefore a lot of voting power because each share equals one vote. The rich man's name is Ike Perlmutter. another rich guy who has a lot of Disney shares, and therefore a lot of voting power, because each share equals one vote.

The rich man's name is Ike Perlmutter. He used to run Marvel Entertainment. He is one of Disney's largest independent shareholders. From 2009, when he sold Marvel to Disney, he had something like $2.5 billion worth of Disney stock. Last year, Bob Iger fired Perlmutter from his job at Disney. So here's where it gets really interesting. Ike Perlmutter and Nelson Peltz get together, and they make this agreement.

Ike says to his friend, Nelson Peltz, he says, look, I'll take my entire stake, $2.5 billion worth of Disney stock, and I'll pledge it to you. With all those shares on his side, Peltz suddenly had a lot more leverage. It means that Peltz can come and say, look, I've got more than $3 billion in Disney stock under my control. You got to listen to me. It opens the door and forces people to listen to him. And now Disney was listening.

You know, there's a back and forth between Disney and Peltz about maybe we can resolve this some other way. Maybe it doesn't have to be a bruising public proxy campaign. But basically, after a certain point, it just becomes clear that Disney's not going to budge. And also that they're sort of taking shots at Nelson. They say that he doesn't know anything about media. You know, buzz off. And so it's become clear that there's going to be no settlement of this before a vote. We're going to have to see this through to the very end.

Both sides started campaigning, lobbying shareholders for their votes. Disney and Peltz and his team have been globetrotting, flying from place to place, New York and Boston and Toronto and London, just trying to convince the big shareholders that their slate of directors is the one to vote for. They've been really pounding the pavement doing that. On the Disney side,

the company was trying to keep shareholders from voting for Peltz by running ads and getting big names to show support, like George Lucas of Star Wars and businesswoman Lorene Powell Jobs, both of whom are shareholders. And then, in February, Disney had some good news. Good day, and welcome to the Walt Disney Company's first quarter 2024 financial results conference call. On February 7th of this year, Disney announced first quarter fiscal year earnings, and it was just a total blockbuster.

27 Golden Globe nominations. Operating income increased by 27%. And a new Star Wars movie. Earnings per share rose 23%. $7.5 billion in cost savings. It had everything you could ever want. It had Taylor Swift. They announced that she was going

to do an exclusive cut of her Eras Tour movie on Disney+. We had Fortnite, the most popular video game in the world. Disney was making a huge investment in Epic Games, the owners of Fortnite, and striking a big partnership with them. We had Nick Saban, the most beloved college football coach of the last decade from Alabama. They were hiring him to be a commentator on ESPN. And they announced, probably biggest of all,

a big joint venture with Warner Brothers and Fox where they're going to launch a sports-focused streaming service. In addition, quarterly earnings were really good. And looking at our results this quarter, we can say with confidence our strategy is working. And I think that Iger viewed this as kind of like a knockout blow to the proxy campaign. You know, basically, it looks like everything is going Disney's way

and that nobody in their right mind could possibly vote for Nelson Peltz in the face of all this incredible progress that Bob Iger has brought to Disney. But it wasn't the knockout blow Iger had hoped, especially after Peltz got some good news of his own when an influential shareholder advisory firm called Institutional Shareholder Services, or ISS, came out to support him.

ISS comes out a month later and says, actually, despite all that progress you've made, we still think that people should vote to add Nelson Peltz to this board. Voting has already started. As of Monday night, with more than half the ballots in, Disney appeared to be pulling ahead. The company was backed by its second largest shareholder,

BlackRock, the money management giant. But investors are allowed to change their votes up until the last minute, and the results won't be finalized until Wednesday. So what is it going to mean for Disney if Peltz wins? And what will it mean if Iger wins? I'll tell you, if Peltz doesn't win, but if he gets a big share of the votes, it'll, for starters, be a referendum on the issue of succession, I think. In my talks with investors and our team's talks with investors over the last few weeks, we've been hearing a surprising number of people who say, look, I understand that

Disney is turning a corner and they're doing better now than they were six months ago, but I still can't get over the fact that this company has screwed up its succession planning process. You know, a lot of investors view that as unacceptable. And then if he does win, if Pels does gain a seat on the board, I gotta tell you, I have no idea what's going to happen. Bob Iger has said over and over again over the last few months that would be really disruptive for him, really troublesome, delay things that would make it harder for him to do his job and therefore harder for him to really turn Disney around

and get it to a place of financial security and get it growing again. You know, we have some investors who've told us they think that maybe even Iger leaves. I guess the final option, Ryan, is that maybe Peltz joins the board and maybe there's a rough transition, but maybe they settle into a groove. That's what Peltz says he wants to do. He says that when he joins boards that we're usually enemies for a month or two, and then we start working together productively. So we can't discount the possibility

that things might actually work out. It's possible. That's all for today, Tuesday, April 2nd. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Lauren Thomas. Thanks for listening. See you tomorrow.