Disney Clash With Activist Peltz Will Have Sequel

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By Breakingviews

Activist investor Nelson Peltz often plays a agelong game. So his truce pinch Walt Disney (DIS) past week, aft a short bid to get a spot connected nan media group's board, mightiness look uncharacteristic. But earlier battles astatine DuPont (DD) and Procter & Gamble (PG) propose that specified crippled twists aren't retired of nan ordinary, raising nan anticipation that Peltz whitethorn still get what he asked for.

Disney Chief Executive Bob Iger unveiled $5.5 cardinal of costs cuts past week erstwhile nan $200 cardinal theme-parks-to-streaming institution released fourth-quarter earnings. On nan look of it, that was capable to get Peltz, who had complained astir Disney's over-the-top compensation practices and "lack of wide costs discipline", to telephone disconnected nan dogs. "The proxy conflict is over," a spokesperson for his outfit Trian Fund Management told Reuters. Disney said it appreciated nan decision.

The problem is that Peltz has only gotten half of what he typically wants. The New York-based activistic carries a mug astir his agency that sounds "sales up, expenses down." Yet nan situation of getting Disney's topline to turn faster, which Peltz sketched retired successful a position connected a now-unavailable website "restorethemagic.com", hasn't been afloat addressed. While gross of $23.5 cardinal successful nan first fiscal 4th of nan twelvemonth was 8% higher than nan erstwhile year, subscribers connected Disney+, nan group's streaming product, fell slightly. Revenue successful nan section that runs Disney's accepted TV networks, for illustration ABC and sports transmission ESPN, was down 5% compared to nan aforesaid 4th nan erstwhile year, to $7.3 billion.

Fixing this is acold from simple. Disney+, nan streaming business, faces superior title from Netflix (NFLX). Overall, Iger's patient burned much cash past 4th than it did a twelvemonth earlier. True, Iger has options. A waste of ESPN has been suggested by different activist, Dan Loeb. Nor has Iger ruled retired a waste of Hulu, different streaming level successful which Disney owns a 66% stake. For now, Peltz is apparently leaving Iger to determine whether shrinking is nan champion measurement to grow.

What makes this harder - and wherever Peltz could person made a quality - is that Disney's governance is poor. Iger still needs to find a replacement for himself. Though he has agreed to time off aft 2 years, Disney has a bad way grounds erstwhile it comes to succession. Iger's erstwhile stint arsenic CEO saw him postpone his status 4 times, move to a caller domiciled arsenic chairman, and past travel back to his aged job erstwhile successor Bob Chapek was ousted.

Granted, Peltz has already won capable astatine Disney to warrant cooling his jets. The company's determination to slash costs was significant, and it gives him an easy victory. The company's shares are up 25% year-to-date. On 1 hand, that intends Peltz is apt to person made a handsome return. On nan different hand, he ran nan consequence of losing nan proxy conflict had he pushed overmuch further, since shareholders person little to kick astir than erstwhile he started. Winning, visibly, is thing activists for illustration Peltz really attraction about.

For Disney shareholders still glum astir nan company's capacity - its shares are up 3% complete nan past 5 years, whereas nan S&P 500 Index is up 50% - there's still hope. Peltz's history shows he doesn't request to beryllium successful nan boardroom to shingle things up. One illustration is nan chemic shaper DuPont. Peltz first revealed a liking successful 2013 and 2 years later made a bid to get onto nan committee during nan shareholder-meeting flurry that U.S. companies telephone proxy season. He lost. But he held connected to nan banal and pushed from nan sidelines, and yet sewage what he wanted: nan return of chieftain Ed Breen and a merger pinch Dow.

There's besides Peltz's high-profile warfare pinch P&G. An acrimonious bid for a committee spot astatine nan household-product shaper ended successful nonaccomplishment aft shareholders voted against him - aliases truthful it seemed initially. A recount suggested he had won, and nan institution began to situation this caller consequence - but past folded and named him onto nan committee anyway. Even aft each that, then-CEO David Taylor worked intimately pinch Peltz to reshape P&G. A fewer years ago, some executives joked successful a CNBC question and reply that they were buying furnishings together.

Could Peltz still extremity up connected nan Disney board? It's not retired of nan question. His conflict pinch nan Magic Kingdom would person been an early trial of a new voting arrangement for U.S. companies, whereby activists' nominees for committee seats tin look connected nan aforesaid voting paper arsenic nan company's ain choices. Previously, shareholders had to prime betwixt 1 slate aliases another. Disney is still a reliable wall to storm, because of its disparate shareholder guidelines and much-loved, all-American marque - but if it turns retired that nan "universal proxy" hands successes to activists successful different firms this season, it whitethorn springiness Peltz an opportunity to revive his boardroom quest later.

For now, looking for illustration a squad subordinate isn't a bad point for nan seasoned cage-rattler. Other activists excessively are progressively trying to spell friendlier routes - Bill Ackman has said he is trying to activity successful much collaborative ways pinch nan companies he targets. Calling a truce based connected Disney's efforts burnishes a estimation for being reasonable, whereas losing a proxy conflict mightiness person had nan other effect. But if Disney's capacity doesn't improve, nan Mouse House astir apt hasn't heard nan past squeak from its uninvited guest.

Context News

Activist Nelson Peltz called disconnected his run to return a committee spot astatine Walt Disney connected Feb. 9, nan time aft Disney's Chief Executive Bob Iger unveiled plans to trim $5.5 cardinal successful costs. Peltz had planned to taxable a bid for a committee spot arsenic portion of nan yearly play successful which shareholders ballot connected firm matters astatine astir of nan large listed firms, known successful nan United States arsenic proxy season. "The proxy conflict is over. This is simply a triumph for each shareholders," a spokesperson for Peltz's Trian Fund Management said connected Thursday, according to Reuters.

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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