If Nelson Peltz were to win his battle to be included on Walt Disney’s (DIS) board of directors, the activist investor could force a level of accountability on the company that is desperately needed. Peltz is the CEO and founder of Trian Partners, an investment firm, which owns 9.4 million shares of Disney, worth about $940 million, close to $100 on Thursday. The firm released a white paper late Wednesday making a case for keeping Peltz on board to help address Disney’s problems including corporate governance challenges, poor strategy and operations as well as deteriorating financial performance. “Total shareholder returns over one, three, five, 10 years have materially underperformed the S&P 500 and underperformed proxy peers,” Peltz said Thursday on CNBC. “Equally important, there are a lot of retail investors in this company. They [Disney] Abolished the effective dividend for 57 years. … We think we can help.” has fallen nearly 52% from highs. Disney shares rose more than 3.6% on Thursday. Disney’s board decided not to endorse Peltz and swiftly announced Wednesday that it nominated Mark Parker who has been a director since 2016 and succeeds Susan Arnold, the executive chairman of Nike (NKE). Peltz highlighted that Parker, who will now chair two companies at the same time, has made Disney’s 21st century Fox acquisition, which was valued at more than $70 billion. The merger, completed in March 2019, put Disney’s balance sheet in a precarious position. “Fox hurt this company. Fox stripped the dividend. Fox took what was once a pristine balance sheet,” Peltz argued. The club’s Tech Peltz makes a strong case that Disney’s fundamentals have changed. The company has underperformed as a result of its poor management and governance decisions, And we don’t disagree. He has experience serving on multiple boards — and we think, at least, it’s worth hearing his thoughts, especially since he has a lot of skin in the game. Disney’s free cash flow 89%, its adjusted earnings-per-share has been halved and its dividend to shareholders has been eliminated in 2020 — all disappointing numbers for shareholders. We bought Disney shares at a higher price in the hope that that previous CEO Bob Chapek would add more theme parks and collaborate with Club Meta Platforms (META) in the metaverse. That didn’t happen. Billion-dollar losses in the company’s streaming business have been a tough pill to swallow. So much so that Chapek was fired and former Disney boss Bob Iger returned as CEO. Peltz’s track record Has had success serving on several company boards. He is currently the non-executive chairman at Wendy’s (WEN), serves as a director at Unilever (UL). He has previously served as a director in Club Holding Procter & Gamble (PG) as well as Cisco (SYY), Kraft Heinz (KHC) among many others. Peltz said that the total shareholder returns of the companies in which Trion has invested — and Peltz has served on the boards — have outperformed the S&P 500 by about 900 basis points annually. In 2017, he narrowly lost a proxy battle with P&G. But because the election results were so close for Peltz’s directorship bid, Proctor appointed Peltz to the board anyway. Peltz served on the company’s board from March 2018 to October 2021, during which time P&G stock rose 81%. What’s more, when asked about his media experience or lack thereof, Peltz said his firm has invested in entertainment giants including Lions Gate (LGF.A), Time Warner, and CNBC-parent Comcast (CMCSA). . Furthermore, the Trian founder said he has a long track record of advising companies on how to strengthen their consumer brands. Disney, Peltz explained, “is much more than a media company.” “It’s a consumer company with a basket full of the world’s greatest brands,” he argued. Chapek’s dismissal and Disney+ Iger’s return in November came after Disney reported disappointing fiscal fourth-quarter earnings under Chapek. Shareholders were particularly disappointed with the entertainment giant’s mediocre direct-to-consumer streaming business, which includes Disney+, Hulu and ESPN+, which has yet to reach profitability. But overall, Chapek, who was Iger’s chosen successor, had a challenging two years as top executive. “I don’t know that he was given the opportunity to do his job,” Peltz said when asked by Jim Cramer how Chapek’s firing came about, suggesting that Iger still appears to be in Chapek’s shadow. Peltz said he does not want to remove Iger, who is working on finding a new successor. “My goal will be to work collaboratively with Bob Iger and other directors to take decisive action that will result in improved operational and financial performance,” Peltz outlined in Trian’s white paper. “My goal is to reduce corporate overhead to the point that the company is better off,” Peltz said. Disney’s streaming business lost about $1.5 billion last quarter. Management has repeatedly stated that it aims to reach profitability for Disney+ by fiscal 2024. Disney is set to report its fiscal first quarter 2023 earnings after the closing bell on February 8. Given Disney’s distressed balance sheet, Jim asked Peltz about the streaming service Hulu. Disney currently owns two-thirds of Hulu and has an option to buy the remaining 33% from Comcast. “I think they have to buy Hulu, or they have to get out of the streaming business,” Peltz said. “Unfortunately, this means that this company will be burdened with debt for many years.” (Jim Cramer’s Charitable Trust is Long DIS, Meta, PG. See here for a full list of stocks.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive trade alerts before Jim takes a trade. Jim waits 45 minutes to send a trade alert before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above Investment Club information is subject to our terms and conditions and privacy policy, along with our disclaimer. No fiduciary obligation or duty exists, or is created, by virtue of your receipt of any information provided in connection with Investment Club. 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Nelson Peltz speaking at the 2019 Delivering Alpha conference on September 19, 2019 in New York.
Adam Jeffery | cnbc
If Nelson Peltz were to win his fight to be included Walt DisneyThe (DIS) board of directors may impose a level of accountability on the active investor company that is desperately needed.