Variety: Trian’s Disney Shares Have Gained $500 Million in Value So Far This Month. Why Is Activist Investor Nelson Peltz Still Unhappy?

Story from Variety:

Nelson Peltz, the activist investor who runs hedge fund Trian Partners, believes urgent change is needed at Disney. He’s waging a proxy-fight battle to install himself and ex-Disney CFO Jay Rasulo as directors, a vote that will go up at Disney’s 2024 annual shareholders meeting April 3.

What does Trian want? “Fundamentally and crudely, we want the stock to go up,” Peltz says in a video on Trian’s Disney proxy-fight site.

Well, so far in February, Disney shares are up 16.2% — which has increased the value of the shares Trian controls by about $500 million. As of Friday’s closing price, the 32.3 million shares of Disney that Trian beneficially owns (79% of which are owned by ex-Marvel Entertainment chair Ike Perlmutter) are worth $3.6 billion.

What drove investors to rally around Disney stock: Its Feb. 7 earnings report for the December 2023 quarter showed improvements in cost reductions, including in its streaming business. And CEO Bob Iger touted a string of new initiatives, including the Disney’s joint venture with Fox and Warner Bros. Discovery to create a sports-centric streaming bundle, plans to debut a stand-alone streaming version of ESPN as early as August 2025 and a $1.5 billion strategic investment in “Fortnite” maker Epic Games. He also revealed a surprise November 2024 premiere date for animated film “Moana 2,” and revealed an exclusive deal for Taylor Swift’s Eras Tour concert film to stream on Disney+ (complete with five bonus songs).

Disney has “turned the corner and entered a new era for our company, focused on fortifying ESPN for the future, building streaming into a profitable growth business, reinvigorating our film studios, and turbocharging growth in our parks and experiences,” Iger said in announcing earnings.

But Peltz isn’t backing down from his battle with Iger and the current Disney board.

Trian dismissed the Mouse House’s announcements as a “spaghetti-against-the-wall” plan. In a letter dated Feb. 12, the hedge fund said among other things that the Epic Games investment “lacks a product roadmap or expected return targets” and that the sports streaming venture with Fox and Warner Bros. Discovery “likely confused consumers, surprised important content partners and competes with the company’s own services.”

“[F]renetic activity, in the face of a proxy contest, is not a substitute for a well-considered corporate strategy,” Trian said in the letter. “Nor is throwing spaghetti at the wall going to feed shareholders who have been starved of returns for so long. Disney shareholders need the company to consistently perform under the watchful eye of a vigilant board.”

Trian also noted that Disney’s board “has still not identified a successor for Mr. Iger.” At the New York Times DealBook Summit in November, Iger — whose renewed contract runs through the end of 2026 — asserted that “the succession process at Disney is robust right now” and “We’re aggressively pursuing succession.”

Trian even included a cartoon depicting Disney board members throwing spaghetti (and meatballs) at a corporate boardroom wall, a reference to business jargon for “seeing what sticks” out of a fusillade of unproven strategies:

Disney released its own letter to shareholders on Feb. 12, which it posted on its own proxy-vote campaign site (votedisney.com).

“Your Board and management team remain committed to driving meaningful growth and creating sustainable shareholder value long into the future,” the Disney letter said, which recapped Iger’s earnings-day announcements. “Despite these efforts, two activist hedge funds, Trian Fund Management, L.P. and Blackwells Capital, are each seeking to replace members of your Board with their own separate nominees, none of whom your Board believes possess the appropriate range of talent, skill, perspective and/or expertise to effectively support Disney’s building priorities in the face of continuing industry-wide challenges.”

In a Feb. 14 interview with CNBC, Peltz commented that Iger’s “pronouncements” about new initiatives “reminds me of a politician making election-day announcements versus State of the Union speeches. State of the Union is what I want to hear about, not election-day promises.”

Meanwhile, in releasing earnings, Disney announced that its board approved a new share repurchase program effective Feb. 7, 2024, with plans to target $3 billion in repurchases in fiscal year 2024. The board also declared a cash dividend payable in July 2024 of 45 cents per share, up 50% over the dividend paid in January — which was the first dividend in more than three years, after Disney suspended dividend payouts during the COVID pandemic.

Peltz, in the Valentine’s Day interview on CNBC, questioned whether Disney can “really afford” continued dividend payments and share buybacks. “The balance sheet has been really injured,” he said. Peltz also said Trian will release a white paper, promised to be a deep dive with prescriptive proposals on how Disney can improve its long-term financial performance, in “a couple of weeks.”

“Everybody better sit down with a nice, warm glass of milk, get comfortable, because you’re going to see chapter and verse on Disney,” Peltz said.

By the way, Peltz has no quarrel with the Disney+ deal for Swift’s Eras Tour movie, reportedly worth more than $75 million. “A real fan. I love her,” Peltz told CNBC. “That’s right. Can’t argue with that.”