A family wearing masks walks past Cinderella Castle in the Magic Kingdom, at Walt Disney World in Lake Buena Vista, Fla.
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Activist investor Nelson Peltz plan to hold a proxy war for a seat on Disney’s board of directors.
Disney offered Peltz, a founding partner of Trian Fund Management, to serve as a board observer and asked him to sign a suspension agreement, but Peltz refused. Here are our thoughts on the situation.
Recommend the position of board observer
At times, the observer position of the board can be beneficial, especially for investors who do not have a lot of experience on the board and are less likely to become regular contributors to the board of directors. discussion of the board of directors. But asking Peltz to be a board observer is like saying to Whitney Houston, “You can join the band, but you’re not allowed to sing.” There was no way Disney thought for a second that Peltz would accept this offer, and there was no way he should have accepted it.
Why is this happening?
It is curious why Peltz start this proxy war in the first place and why Disney was against it. Peltz got his spot when Bob Chapek was CEO and likely plans to replace him with someone Peltz has identified. That would have been a great plan, but it went awry a week later when Disney announced that they had replaced him with former CEO Bob Iger. Knowing Trian’s history and processes, the company has probably been working on that plan for months and is waiting for the perfect moment to build its position. Unfortunately, all efforts to develop Trian’s plan were in vain, but at that point the company should regroup and develop a different approach that takes into account the new circumstances. That plan shouldn’t have included opposing Iger. Although Trian says it currently has no objection to Iger as CEO, the company initially opposed him and that made it very difficult for the board to agree to a settlement for a seat on the board. board for Peltz. Having said that, a strong board with a strong CEO – who is admittedly a short-term CEO – should have no problem with an experienced shareholder in the room who may have an unpopular opinion. favored. In fact, the board should applaud it.
Trian’s Statement
Trian gives a Presentations make its case. In proxy struggle presentations, each side uses facts and data to paint a picture in their favor, and often those claims fail to withstand scrutiny. For example, Trian has a problem with Disney’s total shareholder return under Iger: 270% versus 330% for S&P 500 in the same time. I’m not sure how that compares to the industry, but I’m hoping if the industry margins were more favorable for Trian, they’d have used those. As British economist Ronald Coase put it: “If you torture the data long enough, it will confess to anything.” In this case, we can say that Bob Iger is a bad CEO of Disney. Trian also has a problem with Iger’s decision to get Fox, and he should – it was a bad decision in retrospect. But he should also include that analysis, Iger’s decided to buy again Pixar, Marvel, and Lucasfilm, have brought Disney more than $33.8 billion at the global box office and billions more in merchandise and theme park extensions.
Nelson Peltz as director
All this criticism of proxy combat tactics and strategy aside, and no matter how we torture the data on Peltz’s record as director, of course he should on Disney’s board of directors. He is a major shareholder with a track record of creating value through strategic, operational and capital allocation decisions. No, Peltz won’t be the most valuable director when it comes to deciding who should star in Disney’s next blockbuster or which games should be built at theme parks – board rely on management for those details. But he will be the most well-prepared and valuable board member as he conducts financial analysis of the various strategic and capital allocation opportunities available to Disney and advises the board. decisions about which is best for shareholders. Peltz has also proven to be a valuable director in helping management teams cut operating costs and improve margins, something Disney can use. And if his past is any indication, at the end of his term he will likely be good friends with Bob Iger.
Chance to win
Unfortunately, I think the deck is stacked against Peltz here. It was an extraordinary attempt to get large institutional investors to vote against the board of an iconic company like Disney. That task becomes even more difficult when the company has just removed its CEO and replaced him with a respected predecessor CEO and replaced the chairman. Plus, Disney recently settled down with another top activist, Third point, there are a lot of suggestions like Trian is giving. I believe Institutional Shareholder Services and large institutional shareholders will want to give this new group at least a year to work on their plans before supporting more changes at the company. And I don’t think global delegation will make that much of a difference in the struggle for delegation of a director on a unified board. Having said that, though, while I don’t own any Disney shares in my fund, my 10-year-old and 12-year-old children have a small amount of the shares, and when their ballots were submitted come in the mail, we’ll vote for Nelson.
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 13D Activist Fund, a fund mutual investment in the portfolio of 13D activists. Squire is also the creator of the AESG™ portfolio, an active investment style focused on improving the ESG practices of portfolio companies.
