© Reuters. FILE PHOTO: Nike CEO Mark Parker speaks during a launch event in New York March 16, 2016. REUTERS/Brendan McDermid
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By Svea Herbst-Bayliss, Uday Sampath Kumar and Yuvraj Malik
NEW YORK (Reuters) -Walt Disney Co and billionaire Nelson Peltz are squaring off for a boardroom battle after the home of Mickey Mouse denied the prominent activist investor a seat on its board.
Peltz, who co-founded Trian Fund Management, asked to join the Disney board after criticizing the company for bungling its succession planning, overspending on 21st Century Fox and handing “over-the-top” compensation packages to its CEO.
Disney is “a company in crisis” whose shares have tumbled 39% in the past 52 weeks and are trading at an 8-year low, Peltz’s firm said in a presentation on Wednesday, calling on the company to cut costs and turn a profit at its Disney+ streaming business, which has been losing money even as it expands.
Many of Disney’s problems are “self-inflicted and need to be addressed”, Trian wrote, demanding accountability of how capital is spent and the reinstatement of its dividend by fiscal 2025.
Peltz did not give a detailed plan for achieving his goals at a time Disney CEO Bob Iger is already tackling many of the company’s problems. Sources familiar with Disney said Peltz has only leveled criticisms without offering possible solutions.
A boardroom battle is expected to pit Peltz, an activist respected especially for his work at consumer companies, against Iger who has been hugely popular in Hollywood for years.
Peltz says he does not want to replace Iger.
The investor generally presents himself as a partner to management and this marks only the fourth proxy fight in Trian’s history. If the two sides do not settle beforehand, investors will vote later this year on whether Peltz should sit on the Disney board.
Disney, which recalled Iger from retirement for the top job in November, has given Peltz access to the board and management over the last months. But it blocked his request to join the board, in part, due to his lack of expertise in media and technology, people familiar with the matter said on Wednesday.
Iger has vowed to focus on cost cuts and profitability at the entertainment giant with interests ranging from streaming and theme parks, to movie studios and television. Disney had said it expects the streaming business to break even by 2024.
Iger, who was Disney’s chief executive officer over 2005 to 2020, has agreed to serve as CEO for two more years while the company searches for a permanent chief.
DISNEY SHARES UP
Trian, which owns 9.4 million Disney shares valued at some $900 million – a roughly 0.5% stake, plans to file documents with the Securities and Exchange Commission on Thursday, publicly nominating Peltz as a director candidate.
The firm, which previously pushed for changes at Unilever (NYSE:), P&G, and Mondelez (NASDAQ:), among others, said companies where Peltz sat on the board have seen their returns outperform the broader stock index during his tenure.
In order to try and head off a proxy fight, Disney very recently offered Peltz a role as board observer but asked him to sign a standstill agreement, something Peltz refused to do, a source familiar with Trian’s actions said.
Often a company’s shares surge on news that an activist investor is getting involved. At Disney, which is valued at $176 billion, shares rose 1.6% in extended trading on Wednesday.
“Whether or not Peltz wins his battle, his move seems to have made Disney’s management more aggressive in implementing improvements and fine tuning their strategy,” said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.
“I’m grabbing a box of popcorn to watch this show!” Schulman said.
For Disney this is the second time in six months that an activist shareholder has asked for changes. Third Point’s Daniel Loeb pushed the company to spin off cable sports channel ESPN, buy back shares and refresh its board.
People familiar with the talks with Loeb said the billionaire investor listened thoughtfully and was open to conversation and the two sides quickly agreed to add former media executive Carolyn Everson to the board.
Disney also named independent director and Nike Inc (NYSE:) Executive Chairman Mark Parker as its next chairman, replacing Susan Arnold, who will not stand for re-election.
Parker will also chair a newly created succession planning committee that will advise the board on CEO succession planning.
