The past couple of years have been tough ones for Walt Disney (DIS -0.04%) investors. The secular decline of its broadcast television and cable businesses, ongoing challenges for the overall movie industry, slowing growth in the company's streaming segment, and a high-profile spat with the government of Florida have created a perfect storm of challenges for the House of Mouse.
It appears that things are about to get a bit more complicated. A news story broke over the weekend that activist investor Nelson Peltz of Trian Fund Management is looking to pick a proxy fight. If this seems like a case of déjà vu, there's good reason. Peltz waged a high-profile proxy battle earlier this year before conceding that Disney had already taken many of the steps he had in mind. Unfortunately, Disney stock has been stagnant so far this year, failing to participate in the broad-based recovery of the major market indexes.
Now, with a bigger stake and a fresh perspective, the activist investor is back for round two.
Image source: Disney.
Peltz wants a seat at the table
Trian has reportedly accumulated a stake in Disney worth more than $2.5 billion, according to The Wall Street Journal. The fund is angling to get multiple seats on Disney's board, including one for Peltz himself, though there has as yet been no public response from Disney.
Peltz's interest is understandable. Disney has lagged the broader market, declining roughly 15% over the past year (as of the market close on Friday), bringing the stock to its lowest point in nearly a decade. This is in stark contrast to the broader market, as the S&P 500 has gained about 18% over the past year.
Helping fuel the downturn is Disney's worrisome financial results. For its fiscal 2023 third quarter (ended July 1), Disney reported revenue of $22.3 billion, up just 4% year over year. At the same time, overall paid subscribers for the company's streaming services were flat, while U.S. subscribers to Disney+ declined 1% -- fueling concerns that the path forward may be more difficult than originally believed.
Uncertainty abounds at Disney
This period of unparalleled uncertainty has vexed Disney shareholders, as much about the company's path forward is unclear. Last month, reports emerged that CEO Bob Iger was considering spinning off the company's eight television stations, part of its ABC broadcast network, potentially selling them to Nexstar, the largest owner of television stations in the U.S.
The company poured fuel on the fire with its response, saying it was "open to considering a variety of strategic options for our linear [broadcast television] businesses," but denied reports that it was in active talks to sell them.
This followed comments by Iger in July when the chief executive said Disney would be "expansive" in its thought process about its traditional television stations, saying "they may not be core to Disney."
Wall Street dislikes uncertainty, and Disney's future is certainly rife with it.
Trian is trying again this year to change Disney
Investors may recall that round one of Trian Fund Management's proxy fight with Disney kicked off earlier this year. Trian had accumulated a stake worth $1 billion (at the time) and publicly nominated Peltz for a seat on Disney's board after being rebuffed by the company.
Disney responded by promoting former Nike CEO and executive chairman Mark Parker as its new board chair. Parker had served as an independent director at the company for the prior seven years. In the press release announcing the move, Disney addressed the proxy fight, noting that the board of directors "engaged with Mr. Peltz numerous times over the last few months" but was unable to reach an agreement.
However, Peltz suspended his proxy fight with Disney in February after the company publicized a turnaround plan that included many of the items on the activist investor's checklist. Disney announced a massive reorganization, plans to reinstate the dividend, and a campaign of cost-cutting.
The company has followed through on plans to aggressively cut expenses and is on track to achieve $5.5 billion in cost savings. Iger also noted that Disney was working to make its direct-to-consumer (DTC) streaming segment profitable by the end of 2024.
Despite acceding to many of Peltz's earlier demands, Disney stock continued to lose ground, which doesn't give Peltz much in the way of credibility this time around. The activist investor will need to come up with fresh ideas in order to convince shareholders to endorse his slate of board candidates when Disney has its annual meeting in early 2024.
Disney's investors should keep an eye on further developments, much of which will likely play out in the press over the next several months.
