The Disney board exposed itself to activist intervention, but Peltz may be going too far

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Bob Iger, Chairman and CEO of The Walt Disney Company, pauses as he speaks at an Economic Club of New York event in Midtown Manhattan on October 24, 2019 in New York City.

Drew Anger | Getty Images

Activist investor Nelson Peltz spoke for about 30 minutes Thursday morning with TBEN’s Jim Cramer and David Faber in an extensive interview about why he disney board seat.

But his argument barely touched on what should be his strongest point: Disney’s consistent failure to plan for the CEO succession.

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Peltz was referring to his fund’s slide presentation on Disney’s failures led by former CEOs Bob Iger and Bob Chapek. He said if he had to distill the presentation down to its core, it would revolve around Disney’s poor stock performance and Trian’s track record of value creation. Trian noted that Disney’s stock price peaked in 2021, but is currently trading near its eight-year low. The stock rose about 3% on Thursday.

But Disney’s underperformance in 2022 reflected an industry-wide slump led by Netflixthe stagnant growth. Disney’s stock price spike in 2021 was driven by the same phenomenon: investors are plunging into streaming services with significant subscriber growth. Disney and Netflix are both down about 38% over the past 12 months. Other media stocks have fallen even more. Paramount Global stocks are down 45%. Warner Bros. Discovery shares are down nearly 50% since AT&T merged WarnerMedia with Discovery on April 8.

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Peltz blamed Disney Chief Executive Bob Iger and his board for overpaying 21st Century TBEN in 2019 for the company’s decision to cut its dividend during the pandemic. But asking for a board seat based on Iger’s track record of making acquisition decisions won’t win over many investors. Iger’s series of deals during his tenure as CEO – acquiring Pixar, LucasFilm and Marvel – before TBEN were some of the best acquisitions in media industry history.

Nelson Peltz On Disney Fight: They Want My Input On Operations;  they don't want me to vote

Peltz intends to engage in a proxy fight and his strongest argument to shareholders should not be about Iger’s performance as CEO. Rather, it should be about the administration’s consistent failure to plan for a post-Iger world. Iger developed a history during his first, 15-year CEO tenure of chasing away potential successors, including Jay Rasulo, Tom Staggs and Kevin Mayer. When he left his job as CEO in 2020, he failed to leave the company completely, beginning an 18-month period in which his hand-picked successor, Chapek, felt undermined by his presence.

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Now Iger is back and the Disney board has tasked him with finding a successor within two years. Iger’s track record suggests succession planning is the one area he really struggles with.

“Iger has historically dominated the succession process, but it shouldn’t be Iger’s choice, it’s the board’s choice,” said Charles Elson, founder and director of the Weinberg Center for Corporate Governance. “Disney has made itself susceptible to activist intervention because it has had succession governance issues for nearly 25 years.”

Part of Trian’s pitch to investors is the succession issue, but that doesn’t come up until slide 27 of a 35-slide presentation. Most of Peltz’s arguments are based on Disney’s disappointing stock performance, the decision to scrap the dividend, how the TBEN deal didn’t work, how a hypothetical deal for Sky (one that didn’t actually happen) wouldn’t have worked , and Trian’s history of increasing stock value. He also told TBEN that Disney should either acquire Comcast’s 33% stake in Hulu or “get out of the streaming business.”

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Disney is addressing last year’s stock slump by bringing back Iger, a CEO widely respected by employees and investors alike. Disney will also soon have a new chairman of the board. Peltz’s argument that Iger needs Trian’s help in making strategic decisions just months before returning to work may be a hard sell.

It’s much easier to show that the Disney and Iger board have consistently screwed up succession planning. Trian said in his presentation that Disney’s shareholder engagement process is “one of the worst (if not the worst) of any company we’ve interacted with.”

It’s possible that Disney won’t want Peltz on the board because he’ll force the succession issue, limiting Iger’s ability to stay on as CEO for more than two years. As Trian noted in his presentation (on slide 28), the Disney board extended Iger’s retirement date five different times between October 2011 and December 2017.

Perhaps Peltz should refine his message to focus on that.

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