Disney will unveil fiscal first-quarter financials after market close Wednesday – but this isn’t any earnings report. It’s one that comes with two separate activist shareholders lobbying aggressively to push new directors onto the company’s board because the stock has lagged and, they say, Disney hasn’t made any big moves to create value.
One potential game changer came late yesterday with Disney, Warner Bros. and Fox announcing the launch of a new sports streaming joint venture pooling the sports rights of three big media companies. That will generate a lot of conversation on Disney’s earnings call — but is it enough for Nelson Peltz to back off? He retreated from a proxy fight a year ago, but Disney’s stock was higher then.
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The shares are trading at $99 — up nicely from a 52-week low of $79, but still down significantly from a year high of over $118.
Estimates for Disney’s upcoming numbers vary but Wall Street is looking for revenue of circa $23.8 billion for the last three months of 2023 — Disney’s fiscal first quarter — and hoping for updates on a few key matters from streaming profitability, a distribution partner for ESPN (apparently still in the cards even with the streaming JV), the streaming JV itself (which has no price and no name as yet), and a sale of Star in India.
Disney’s promised streaming black ink in the current fiscal year and hasn’t commented yet on reports of a deal in India.
CEO Bob Iger has also said righting the film studio is a top priority after weaker than anticipated box office for The Marvels and Wish saw analysts lower their entertainment segment estimates for the December quarter.
A failed lawsuit against Florida Gov. Ron DeSantis made headlines last week when a judge dismissed the case. Succession remains a key issue. CEO Bob Iger’s latest contract runs through the end of 2026.
Against this tumultuous backdrop, two activist investors claim they’re trying unlock shareholder value by nominating their own directors to shake up Disney’s board. Trian Partners has nominated its founder and CEO Peltz and former Disney executive Jay Rasulo, who ran parks for years then served as Disney CFO through 2015, as directors.
Jason Aintabi, founder and chief investment officer of Blackwells Capital, is putting up Craig Hatkoff, Jessica Schell and Leah Solivan.
Shareholders will elect directors at the annual meeting set for April 3 and convening virtually. Since there are a finite number of board seats, Trian is asking shareholders to withhold votes for two Disney nominees and current directors Maria Elena Lagomasino and Michael Froman.
Disney insists Peltz had not contributed “one strategic idea that would benefit shareholders and said Rasulo would have an “outdated perspective” and a hard time working with Iger since he was passed over as CEO-in-waiting in 2015. The company defends its directors and its direction and created a website for shareholders with an animated video explaining how to vote for Disney’s nominees.
There’s no love lost between Trian and Blackwells but both will be parsing the numbers closely for signs of weakness to back their clamor for board change. Blackwells on Tuesday floated the idea of splitting up the company or at least spinning out its real estate.
Peltz has some firepower since Trian can vote its own shares as well as those owned by ally Ike Perlmutter. The former chairman of Marvel Entertainment became a major stockholder after selling Marvel to Disney for $4 billion in 2006.
Disney has a handful of big institutional investors, many small ones and a base of retail shareholders. It has said publicly it recruited one investor, ValueAct Partners, which will be supporting its director nominees in exchange for Disney agreeing to consult with the hedge fund on strategy.
Interestingly, it was 20 years ago when the reign of then CEO Michael Eisner toppled at the company’s annual shareholder meeting in Philadelphia. Activist investors Roy Disney – nephew of Walt – and Stanley Gold waged an aggressive campaign against him claiming the company had lost focus and creative energy. Shareholders heard and Disney stripped him of the chairman title after 43% of shareholders withheld support in a vote. He resigned as CEO in 2006, naming Iger his successor.
Unlike Eisner, Iger’s job is not in jeopardy, and the CEO still has a lot of political capital with the financial community. “This is not like the final days of Michael Eisner, who had legacy family members going against him,” said one Wall Streeter. Many issues Disney is grappling with are industry wide — and he know the industry as well or better than most.
Laying out the bull case for Disney stock in a note yesterday, Loop Capital analyst Alan Gould noted that “numerous activists would not be involved if the valuation was not attractive.” Other points: Disney has “the best assets in the traditional media business,” he said. Streaming may soon turn profitable; the film studio is under-earning (so they’re upside); and the company may bring in attractive strategic partners for ESPN — although he and others think that’s less likely with the new JV.
The bear case, according to Loop — linear television declining at an accelerating rate; domestic theme park growth close to historic peak margins (with competition in 2025 from Universal’s Epic Universe); an unclear profit trajectory for streaming; and ESPN not finding partners on acceptable terms (although that might matter less with the joint venture). Gould thinks the venture is a win for Disney, estimating the company will collect close to half its revenue, which should more than offset sales lost due to cord cutting.
Fox CEO Lachlan Murdoch said after earnings this morning the new service will reach millions of “cord nevers” without disrupting the traditional bundle.
Disney will release earnings after market close today with the call at 4:30 ET.
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