Disney Wins Proxy Battle, Stock Drops
ValueWalk | Apr 05, 2024 02:51AM ET
Walt Disney (NYSE:DIS) fended off a challenge from activist investors as shareholders voted for Disney’s full slate of 12 candidates to sit on the board. However, the news was not viewed favorably by investors, at least initially, as the stock price slipped about 3% on Wednesday.
At least for now, this concludes a long-running proxy battle launched by Trian Partners, a major Disney shareholder that owns $3.5 billion in Disney stock, to gain seats on the company’s board. Trian put up two names for election to Disney’s board: Trian founder Nelson Peltz and former Disney Chief Financial Officer Jay Rasulo. Additionally, hedge fund Blackwells Capital, another Disney shareholder, put up three more nominees for the board, all of whom also fell short.
Disney issued a release on Wednesday afternoon stating that “it appears that Disney’s full slate of 12 directors has been elected by a substantial margin over the nominees of Trian and Blackwells at Disney’s 2024 Annual Meeting of Shareholders today.”
The final tallies won’t be official until they have been verified by an independent auditor in the coming days.
h2 Changes Afoot at Disney/h2The election was a vote of confidence in Disney CEO Bob Iger, who has faced challenges two years in a row from Peltz and Trian. With Iger, Mary T. Barra, Safra A. Catz, Amy L. Chang, D. Jeremy Darroch, Carolyn N. Everson, Michael B.G. Froman, James P. Gorman, Maria Elena Lagomasino, Calvin R. McDonald, Mark G. Parker, and Derica W. Rice were elected to the board.
“I want to thank our shareholders for their trust and confidence in our Board and management. With the distracting proxy contest now behind us, we’re eager to focus 100% of our attention on our most important priorities: growth and value creation for our shareholders and creative excellence for our consumers,” Iger said.
Trian launched a proxy battle leading up to last year‘s meeting but decided to drop it after Iger announced a restructuring plan to cut costs by $5.5 billion and lay off 7,000 workers. However, that plan did not move the needle enough, as Disney stock rose just 4% last year. Thus, Peltz launched another proxy fight leading up to this year’s meeting.
Beyond the cost reductions, Trian had issues with Disney’s succession planning after Iger first stepped down in 2021, its missteps with its streaming business and TV networks, its “strategically flawed” acquisition of 20th Century Fox, its lack of clarity on a strategy for ESPN, the board’s lack of focus and accountability, its earnings struggles, and the underperformance of its stock price relative to its peers — among other concerns. Over the past five years through April 2, Disney stock has averaged a 1.4% annual return.
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Disney pushed back on some of the arguments, saying it was making strides on several fronts, including expense reductions, improving cash flow, moving toward profitability on streaming, and the announcement of a new sports-streaming platform to launch this fall. Disney also had a strong Q4 that beat estimates and called for earnings to increase 20% in 2024 and free cash flow to double to $8 billion by year’s end. The result has been a 31% increase in the stock price year to date.
h2 Trian Proud of the Impact/h2Axios reported some of the results on Wednesday, but keep in mind, these notes are from the outlet’s sources and not official. Axios said the lion’s share of the support came from retail investors, with 75% backing the Disney candidates. It also said Iger had 94% of the vote, while Peltz had about 30% of the vote. Lagomasino reportedly beat Rasulo by roughly a five-to-one margin, according to Axios.
“While we are disappointed with the outcome of this proxy contest, Trian greatly appreciates all of the support and dialogue we have had with Disney stakeholders,” Trian management said in a statement following the vote.
“We are proud of the impact we have had in refocusing this Company on value creation and good governance. Since we re-engaged with the Company in late 2023, Disney has announced a host of new operating initiatives and capital improvement plans. The Board has been refreshed with two new directors. Over the last six months, Disney’s stock is up approximately 50% and is the Dow Jones Industrial Average's best performer year-to-date.”
Trian added that it wishes “the best for all of the Company’s stakeholders, including Disney’s Board and management team. We will be watching the Company’s performance and be focusing on its continued success.”
Wednesday’s sell-off is likely a knee-jerk reaction to the headlines, but it doesn’t really change Disney’s trajectory. The challenge from Trian and Blackwells may have failed, but it did manage to push the company harder in the direction it now seems headed. Trading at 26 times forward earnings, Disney looks like a decent value, and if the board and leadership can now execute on their plans, Disney investors should benefit.
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