Today, Explained - The fight for control of Disney’s kingdom

Episode Date: April 2, 2024

CEO Bob Iger is fighting off activist investor Nelson Peltz, who argues the company spends too much on message-based “woke” programming and is campaigning for seats on the Disney board. This episode was produced by Hady Mawajdeh and Jesse Alejandro Cottrell, edited by Matt Collette, fact-checked by Laura Bullard, engineered by Patrick Boyd, and hosted by Noel King. Transcript at vox.com/todayexplained Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

Welcome shareholders. Wait, what's happening? Friends, relatives, and esteemed chairman, you're probably wondering what we're all doing here today. Now, let's begin. Right. Disney shareholders are voting on who gets seats on the company board. Professor Ludwig, why don't you

tell our shareholders how they can vote? Yes, yes. Today we're going to use the Van Drake method. Ludwig, Van Drake, Moana, and Iron Man have all been dispatched to get out the vote because CEO Bob Iger is trying frantically to hold off

an investment group called Tryan that wants a board seat to make changes to Disney. Remember, it's important you vote only for Disney's 12 nominees using the white proxy card. Do not vote for the Tryon Group or Blackwell's nominees. Coming up

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Please play responsibly. If you have any questions or concerns about your gambling or someone close to you, please contact Connex Ontario at 1-866-531-2600 to speak to an advisor free of charge. BetMGM operates pursuant to an operating agreement with iGaming Ontario. Hey, hey everybody. It's Today Explained. I'm Noelle King with Alex Weprin of The Hollywood Reporter, who has been covering the fight for the future of the House of the Mouse.

Okay, here's the issue. Disney's stock price is up 34% this year, which is very good, but it is down almost 40% from a record high in March of 2021. Enter the investor who says he can turn this around. So Disney at the moment is in the middle of a pretty personal and high-profile proxy fight. An activist investor, Nelson Peltz, is seeking board seats at the company, and he's seeking change at the company. This company is just not being run properly.

The board oversight is awful. It really is. You can see it's getting a bit long in the tooth. They need more capital invested now. And the company's board and CEO, Iger are kind of fighting back trying to prevent that from happening. Focusing my time, my energy, and the time and energy of the entire team is extremely important. Disruption from a force like that is not something that would be healthy to the shareholders of this

company. It's become very high profile, It's gotten national, international coverage. And, you know, it could change the future of Disney. Okay, who is Nelson Peltz and why does he want a board seat so badly? So Nelson Peltz is this corporate raider. He's an activist investor. We see really companies that we think were once great have lost their way and that we have a plan for them to get back to greatness again. And that's what we do. His strategy is to accumulate large stakes in companies, then agitate for change. We're not there to leverage up these companies. We're not there to split them up. He seeks board seats for himself, for some of his colleagues at his company, Tryon Partners.

And then when he gets on the board, he kind of tries to press for cost-cutting, for savings, for sweeping changes that can kind of transform these companies. We're not there to do all the terrible things that typically go along with the term activist. What kind of changes does he want? In the case of Disney, he's pushing for additional cost-cutting. He wants to try and make the streaming business profitable, which I will note is also a focus of Bob Iger and the current board. They are really now committing to streaming profitability. They've given us a timeline. They've said, expect us to achieve profitability by fiscal fourth quarter of 2024.

And he wants changes to ESPN's sports strategy at ESPN, which is the dominant player in sports television, but is on a declining path given where current, you know, trends are in cable television. So Peltz is a powerful guy because he's got money. Does he have allies in this fight to get him on the board? Nelson Peltz has one very important ally, and that is Ike Perlmutter. He's the former CEO of Marvel. He's actually the CEO of Marvel who sold the company to Disney for $4 billion. And when he did so, he received billions of dollars in Disney stock, and he actually stayed with the company as chairman of Marvel until he was laid off just last year in cost cutting. He said, quote, I can no longer watch the business underachieve its great potential. I urge Disney's board to immediately welcome one or more Tryon board candidates, including

Tryon's CEO and founding partner Nelson Peltz, into the boardroom. I believe Nelson and Tryon can help Disney's leadership better navigate the company's challenges and opportunities. Nelson Peltz, most of his stake in Disney is actually shares owned by Ike Perlmutter. And so that is his key ally in this fight. Is one seat on a board really such a big deal? Well, one seat isn't enough to have dramatic change in a company, but it does give you a seat at the table and it allows you to kind of press for certain changes. You know, you could introduce a possible CEO successor to Bob Iger.

There are certain things you could do. He is pushing for two board seats. He also wants a guy named Jay Razzullo, who's the former CFO of Disney, to also get a seat. But really, you know, just one seat would be enough to kind of push for change at the company. Pelz got a lot of attention recently when he gave an interview to the Financial Times about Iger's leadership strategies. And Pelz was making some noise about Disney programming being too woke or too inclusive, however you want to call it. Is that what Nelson Pelz's takeover is about?

You said there's some other things underlying what he wants. How much of this is about Disney's gone woke? That's an interesting thing. In the official documents, if you look at the official paperwork, the white paper that Nelson Pelz has published, there's really nothing about woke programming. But you're right, in that FT interview he agitated, he complained about the Marvels, which has an all-female superhero cast. Hi, Captain Marvel. It is so good to see you, Lieutenant Trouble. You too.

And it's Captain Rambo now. Right. He complained about Black Panther, which of of course, is a black superhero. We want back! We want back! Those are comments that actually mirror comments made by Ike Perlmutter. Bob Iger, in his memoir, actually mentioned that Perlmutter was opposed to making a Black Panther movie because he didn't think it would be successful. And he was opposed to a Captain Marvel movie because he felt that a female superhero wouldn't sell action figures and

toys. So that's, I think, raised a lot of eyebrows at Disney because those comments mirrored some from Mike Perlmutter. And it's something that a lot of people within Disney are concerned about. In this interview in the Journal, the ex-Marvel chief says, I have no doubt that my termination was based on fundamental differences in business between my thinking and Disney leadership because I care about return on investment. Are those comments true? I mean, Black Panther, in my memory, made a boatload of money.

I don't know about the Marvels. Tell me how much of this is grounded in reality. So Black Panther, it's enormously successful. Ha! It is now the fifth highest grossing domestic film in the history of cinema, not counting for inflation, obviously. It's also the most successful superhero movie of all time domestically, including North America. And it's true that the Marvels was kind of a flop. But the truth is the last year or two, pretty much every Marvel movie has underperformed.

And the original Captain Marvel was extremely successful. So really, you know, it's hard to say exactly what this is about. You know, is he seriously complaining about this? You know, Black Panther was a huge success. And the idea that they would try to step in and stop it is crazy looking in hindsight. Because just to remind people, we all sometimes forget an investor in a company should want that company to make money. Absolutely. That's the whole point. So then there is an additional thread that you and others have reported on that is very

interesting, which is Bob Iger recently was speaking at a New York Times summit, and he also made some comments about Disney and wokeness. What did Iger say? Iger had said that he had told his creative executives, the executives at the company that kind of oversee the films and television shows, that the focus has to be on creativity, on great storytelling, and that political messaging or any sort of messaging that isn't about storytelling should really be put on the back burner. It's hard to say exactly what he was talking about in any specific shows or movies. But I do think that is some of the criticism that has been leveled against Disney is that maybe there have been moments where there's scenes that take away from a show or movie because it feels like it's kind of shoved in there for messaging purposes. I don't know if that's true or not, but I think Iger seems to think that it is true. Keep in mind, the lead time for these movies and shows can be years, so it's entirely possible that they have axed projects that are

just not going to get made because he felt like it was too message-focused. But I do think Iger is kind of seeing some of the pushback and is adjusting somewhat, even though I think he will defend Black Panther, he will defend Captain Marvel to the end. Like, you know, he does not think those are woke at all. I do think he's being conscious of the type of programming that could be perceived as political in nature. Does Iger have the backing that he needs to win against Peltz? Does he have what he needs? I mean, Iger has lined up a murderer's row of supporters. You know, Laureen Powell Jobs, the widow of Steve Jobs.

She's a philanthropist. She's an investor. George Lucas, the Star of Steve Jobs. She's a philanthropist. She's an investor. George Lucas, the Star Wars filmmaker who himself sold his company to Disney. Perhaps most importantly, he's lined up the support of the families of Walt and Roy Disney. The Disney family, actually, they don't get along very well. This is pretty well known. And among the people that signed a letter of support for Iger was Abigail Disney, who's Roy Disney's daughter. And she has actually very publicly, critically criticized him.

Abigail Disney is taking aim at the company that shares her name. I had to speak out, she writes in today's Washington Post, about the naked indecency of chief executive Robert Iger's pay. Pointing out that Iger made $65 million in 2018, more than 1,400 times the median pay of a Disney worker. So to actually have the backing of the Disney family is a big deal. All right, so Iger's got some powerful people, including the Disney family, and Peltz has got who in his corner? Peltz has one big backer beside Perlmutter, and that's Institutional Shareholder Services.

It's a third-party proxy advisory firm. They're very influential. They carry a lot of weight with the institutional investors. And to the surprise of a lot of people, they actually said they think that Pelts should get a board seat. On the Disney proxy fight, ISS, they are advising to vote for Pelts. That was kind of a blow for Disney because they do carry a lot of weight with a lot of investors. And so that does kind of, it gave Peltz oxygen at a moment when it felt like his activist fight was perhaps beginning to slow down. So I think that's kind of the big ally that Peltz has on his side.

What does this mean? So the reason that people care about Disney, even if they are not Disney shareholders or involved with Disney at the highest levels, is that Americans really do love Disney. What does this fight mean for normal people who just really like Disney stuff? So look, Disney is in the middle of this moment of transformation. You know, Iger is trying to transform the company. He's also trying to figure out who can succeed him as CEO. Ultimately, if Nelson Peltz or Nelson Peltz and Jay Razulo get seats, they will have say in the future of Disney. They will have a say in who replaces Iger as CEO.

It could change the company in a way that we don't entirely understand. So I think that's the big thing. This fight is for the future of Disney. That was Alex Weprin of The Hollywood Reporter. The billionaire Nelson Peltz claims credit for turning around some very large, very troubled companies. He introduced new Snapple flavors. He turned Heinz into a sponsor of the World Championship hot dog eating contest. How exactly does his brand of shareholder activism work? That's coming up. Support for Today Explained comes from Ramp.

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never have to chase down a receipt again. You can customize spending limits and restrictions so your employees are empowered to purchase what your business needs and you can have peace of mind. And now you can get $250 when you join Ramp. You go to ramp.com slash explained, ramp.com slash explained, ramp.com slash explained. Cards are issued by Sutton Bank, a member of the FDIC, and terms and conditions do apply. I won't care. I'll have spent one day at Splained. Where'd the music go? My name is Lauren Thomas, and I'm a reporter at The Wall Street Journal covering M&A and shareholder activism.

What is shareholder activism exactly? Shareholder activism, it's an interesting concept in the world of Wall Street. But effectively, what typically you know, typically these hedge funds do is they show up at companies, they're looking to push for change, agitate for changes that will ultimately boost the stock price. Because at the end of the day, these activists are trying to make, you know, a nice chunk of change themselves. So when Nelson Peltz articulates what he wants to do at Disney, he's saying, I want Disney to make more money, to be more profitable, and I want to initiate that change. How exactly? Nelson Peltz is effectively arguing a couple things, but really at the core, it's that Disney needs to do more, particularly with its streaming operations, to really make those more profitable.

Secondly, though, you know, a big piece of his argument in this proxy battle is succession planning. So you might recall when Bob Iger pretty abruptly announced that he would be returning to the company as CEO. He had left and he had handed over the reins to his successor, Bob Chapek, who was there for a brief period of time.

And then suddenly Bob Iger is back. And he says he's back and he's ready to fix things. I guess I had a sense of obligation. And I also wanted to help them not only transform the company during, I think, a pretty critical time, but I wanted to help them succeed at succession. A big part of Nelson's argument is that Disney just hasn't been able to get succession planning right. And he's worried that the company just won't be quick to find a new successor to Iger. What does Nelson Peltz know about turning businesses around? Tell us about this man.

So I think it's worth pointing out, I mean, like, you know, a Carl Icahn, for example. Nelson Peltz is certainly a big name in the world of activism, arguably one of the biggest, most well-known. He's really been at this for decades. He really started out, his bread and butter has always been in consumer. You know, so he, back in the day, was working at his dad's food distribution business, ended up kind of turning that around and helping sell it. Then he acquired Snapple, the beverage company back in the day with his business partner, ended up making a pretty nice payday a couple of years later when they sold that.

Snapple made from the best stuff on earth. Come around to 2005, and that's when the tri-end that we all know today was formed with two other business partners. And that's really when Nelson Peltz started to make these big splashes in companies. One of their early investments was in Heinz, now known as Kraft Heinz, since gone through some M&A itself. But he was really pushing for cost cuts there. When we get on a board at Triane,

we're interested in having management and the board to wear bifocals. The near term is important, but to really have your sights set on the long term. What is the objective? What's the target? Share it with your share owners and tell us the gates that you're going to go through to get there. He later waged a proxy battle at DuPont, which ended up merging with Dow. He also waged a proxy battle at Procter & Gamble, another big consumer giant. So Nelson's background is really in these big, well-known brands.

He shows up and kind of argues that, in large part thanks to his kids, he's got 10 kids, which I think is an important thing to know about him. He really has a good read on changing consumer tastes and behavior, spanning multiple generations. And that is certainly something that, you know, people that have been around Nelson over the years have recognized. I think what Disney has argued, though, to bring this back to the Disney fight, is that he hasn't really done much in media before, media and entertainment. I think Nelson and Tryon argue that Disney is just like any of these other companies that he showed up in. It's a big household name. It's really a house of consumer brands is kind of their belief. But I think where Disney has pushed back and argued, of course, that, and we can get into

that, but why Nelson shouldn't have a seat on the board is they kind of come at it as he doesn't really have experience at a company in their sector of the world. He has not articulated either a vision or even ideas that are of particular value to us. Now, some he has, but we were already working on those. But he's done, I mean, Heinz and DuPont and Dow, he's run the gamut. His investing has run the gamut. In the industries where he's done well, where he's helped turn a company around or where his firm has helped turn a company around, how have they done it? What's the playbook? You know, it's often cost cuts show up and, you know, look for areas within the business where management just hasn't done as good of a job and maybe they just get too

emotionally attached for things. I think that sometimes when it's easier for these outsiders to come in and push for change is because, you know, they're an outsider and especially when you get involved with these founder-led businesses. And so, you know, it's easier for them to show up and have a clearer look on the business and areas for improvement. So they do not necessarily wage these proxy battles often. Disney is actually only the fourth ever proxy fight that Trion has waged in, you know, its two-decade-plus history. You know, they do it when they're really serious and they're really looking to make a difference. And that's what they're arguing that they can try to do if they get a seat at the table at Walt Disney.

I'm thinking about an interview that he gave to the Financial Times that we talked about in the first half of our show. Pelz was giving this interview to the Financial Times and he suggested that he thought some of Disney programming had gotten too woke. And that raised a lot of questions about what exactly at Disney he wants changed. And I wondered whether that was like the rambling of a much older man or whether that was Disney has gotten too woke and therefore it's hurting the bottom line. And as an activist shareholder, I want to do something about that. What do you think has happened here? I do think it's more the latter. I do think that he feels that he is like speaking up in this proxy fight for a shareholder base that I'm sure he believes feels the same way and speaking up for sometimes people that feel like they're a bit of a silent minority. But no, I think bottom line,

anything that Tryon and Nelson is pushing for at Disney, they would view as helping the business just get on better financial footing, help the stock get back up. Arguably, before Tryon showed up in the stock, you know, Disney had really been underperforming and there were a lot of shareholders and investors that had a lot of questions. And, you know, now they have announced a lot of changes and strategic initiatives in the past couple of months. Is that because Nelson showed up, you know, with some of that sped up maybe because they knew he was knocking at the front door trying to get in? That's a great question to be asked. But the, you know, shares have rebounded some in the past couple of months. So that's an optimistic

viewpoint, you know, for a lot of people that have been following this saga. All right. So the board vote is tomorrow. What's going to happen? What are you going to be looking out for? It really feels like it's down to the wire. And again, you know, for those of us who have been following for over 12 months now, you know, it feels like we've been just talking about this forever and now it's nearing an end. And, you know, the way that this plays out, you know, a number of votes have already come in.

It's really tough to get a final read and we typically don't get a great read on this until, you know, everything's said and done, the polls are closed and the companies will ultimately issue, you know, some sort of guidance on what the vote's looking like. But, you know, with Disney, I think it's important to remember the makeup of their shareholder base. And that's what's making this proxy fight so unique. Think of like my mom,

your brother, you know, the everyday kind of average retail investor, an outsized proportion of Disney shares, over a third actually, which is pretty abnormal for a public company, are owned by these like everyday retail shareholders. And so that's very unique for a public company in general. But then when you've got a proxy fight, it's really unique and can make for some interesting twists and turns because, you know, it's people like you and I that are, you know, maybe looking to cast a vote, not just the big institutions like a BlackRock, a Vanguard, a Fidelity. And so the meeting itself will happen, the polls will close, and then it could take a couple days to really get a good look at what the tally is going to be. But really, at this point,

it's still so up in the air, I think. But people are going to be watching very closely. That was Lauren Thomas of The Wall Street Journal. Hadi Mouagdi and Jesse Alejandro Cottrell produced today. Matthew Collette edited. Patrick Boyd engineered. Laura Bullard fact-checked. The rest of our team includes Halima Shah, Avishai Artsy, Miles Bryan, Victoria Chamberlain, David Herman, Amanda Llewellyn, and my co-host, Sean Ramos-Firm. Also, supervising editor Amina El-Sadi and EP Miranda Kennedy.

We use music frequently and today by Breakmaster Cylinder. Today Explained is distributed by WNYC and the show is a part of Vox, which is completely free thanks in part to contributions from listeners just like you. You can join us at vox.com slash give. I'm Noelle King. This has been Today Explained. you