Company: Walt Disney (DIS)
Business: Disney is one of the most famous entertainment companies in the world. It operates through two segments, Disney Media and Entertainment Distribution; and Disney Parks, Experiences and Products. Disney is engaged in the production and distribution of film and television content and operates television stations and studios.
market value: $181.3 billion ($99.43 per share)
Activist: Trian Fund Management
Percentage ownership: n / A
Average cost: n / A
Activist Comment: Trian operates a concentrated portfolio of 8-10 mid to mega cap public companies, where it actively works with management to drive long-term shareholder value. Trian, managed by Nelson Peltz, takes very few positions but is very active in the fund’s positions. Peltz calls his formula “operative activism”. He defines it as management of high-potential but underperforming companies working to increase revenue by cutting overhead, downsizing side businesses, and most importantly, revitalizing famous brands.
Trian describes himself as a “constructivist,” suggesting a kinder activist investor. First, let me say that I don’t like that word for two reasons. For one, it suggests that activists who are confrontational cannot also be constructive. Second, I don’t think a good activist is a “constructivist” or “confrontational” activist. How friendly or confrontational an activist is in a given situation depends on many things, most notably the company’s response. Trian, like most activist investors, intends to be friendly and always starts out that way, and then it’s up to the company to respond. It is often the company that decides how confrontational a situation can become. GE invited Trian to the board; Not Procter & Gamble. Trian was not a “constructivist” investor in GE and not a “confrontational” investor in Procter & Gamble. The company is an activist investor, pure and simple.
On November 21, The Wall Street Journal reported that Trian Fund Management had taken an approximately $800 million stake in Disney. It was also reported that Trian was interested in increasing that holding and would likely acquire more shares, consistent with the size of positions Trian has historically taken in mega-cap companies. The investor is reportedly seeking a seat on the board, advocates that the company make operational improvements and cut costs, and has opposed the reappointment of Robert Iger as CEO.
In this situation, Trian seems to be looking for a seat on the board, urging Disney to make operational improvements and cut costs. This is very similar to what Dan Loeb and Third Point championed at Disney earlier this year. On September 30, Disney reached an agreement with Third Point, including adding former meta executive Carolyn Everson to the board. On November 11, Disney announced company-wide cost-cutting measures and told division heads that layoffs were likely. This will include a ban on all but essential work travel and a freeze on new hires for all but a few critical positions. Much of what Trian is aiming for — board turnover (particularly with former CEO Bob Chapek now stepping down from the board) and cost cutting — has either already happened or is about to happen.
Another thing about Trian is that it’s a very thoughtful investor known for its detailed, comprehensive white papers. The company didn’t go about this without a plan, and that plan was anything but spontaneous or reactive. It was a plan that Trian likely developed over many months. And it was presumably thrown for a loop when Disney announced it would replace Chapek with former CEO Bob Iger. The fact that Trian had not yet established its full position when its stake was announced is further evidence that the company felt it had to list its investment earlier than desired in response to Disney’s announcement. Iger was a highly respected and value-added CEO at Disney for many years, and the stock has responded positively to the news. So it’s interesting that Trian is reportedly opposed to Iger’s appointment. The company is also not supporting outgoing CEO Bob Chapek. Knowing Trian, and knowing activists, that can only mean one thing: Trian’s plan includes his own idea for a new CEO, something that would have been a lot easier to implement last week before Chapek was replaced by Iger.
This will be a tough fight for Trian. Disney recently reached an agreement with activist investor Third Point and likely won’t settle with another activist for a seat on the board, especially given all the changes already made. Additionally, Trian would likely want Nelson Peltz or Ed Garden to be the company’s representative on the board, and Nelson already serves on three public company boards (Unilever, Wendy’s and Madison Square Garden) and Ed on two (GE and Janus Henderson Group) . Disney definitely needs serious change, but in the last three months the company has announced a cost-cutting plan, refreshed its board, and changed its CEO. It is not unreasonable to test whether these initiatives are working before considering further changes. If Disney doesn’t offer Trian a seat, the company would have to resort to a proxy fight to get a seat, which it’s unlikely to win on a platform with more changes and against Bob Iger as CEO. We will definitely know more soon as Trian has until December 9th to nominate the directors for the 2023 AGM.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of 13D activist assets. Squire is also the creator of the AESG™ investment category, an activist investment style focused on improving portfolio companies’ ESG practices.