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Disney is scheduled to release its first-quarter results after the market closes on Wednesday, but this will not be an earnings report. This comes as two separate activist shareholders are actively lobbying to push new directors onto the company's board of directors on the grounds that the stock price is depressed and Disney is not making significant moves toward value creation. This is due to the activities being carried out.
A potential game-changer was announced late yesterday when Disney, Warner Bros., and Fox announced the launch of a new sports streaming joint venture that would pool the sports rights of the three major media companies. That will generate a lot of buzz during Disney's earnings call, but will Nelson Peltz's departure be enough? He withdrew from the proxy fight a year ago, when Disney's stock price was high.
The stock is trading at $99, a significant increase from its 52-week low of $79, but still well down from its one-year high of over $118.
Estimates of Disney's future numbers vary, but Wall Street expects revenue of about $23.8 billion in the final three months of 2023 (Disney's fiscal first quarter), with ESPN (apparently a streaming joint venture and ), the streaming joint venture itself (which has not yet been priced or named), and the sale of Star in India are also being considered.
Disney has committed to streaming Black Ink sometime this year, but has not yet commented on reports of a deal in India.
CEO Bob Iger also said that rebuilding the movie studio is a top priority after box office sales fell short of expectations. marvels and wish Analysts have lowered their forecasts for the entertainment sector for the December quarter.
Last week, a lawsuit against Florida Governor Ron DeSantis made headlines after a judge dismissed the lawsuit. His successor remains a key issue. CEO Bob Iger's latest contract runs through the end of 2026.
Against the backdrop of this turmoil, two activist investors say they are seeking to unlock shareholder value by appointing their own directors to revamp Disney's board. Trian Partners has named Peltz, its founder and CEO, and Jay Laslo, a former Disney executive who ran the park for many years and then served as Disney's CFO until 2015, to its board of directors.
Jason Eintabi, founder and chief investment officer of Blackwells Capital, has Craig Hatkoff, Jessica Schell and Leah Solivan as potential candidates.
Shareholders will elect directors at the annual general meeting scheduled for April 3 and to be held virtually. Because seats are limited, Trian is asking shareholders to hold off on voting for two Disney nominees and current board members Maria Elena Lagomasino and Michael Froman.
Disney claims that Peltz “did not provide a single strategic idea that would benefit shareholders,” and that Laszlo had “outdated views” and that he was forced to step down as CEO in 2015. He said it would be difficult to work with Mr. Iger since his death. The company is defending its directors. and created his website for shareholders with an animated video explaining how to vote for Disney's nominees.
There's no love lost between Tryon and Blackwells, but both will be looking at the numbers carefully for signs of weakness to support calls for board changes. Blackwells on Tuesday floated the idea of breaking up the company, or at least spinning out its real estate.
Peltz has some firepower because Tryon can vote on his own stock, as well as those owned by ally Ike Perlmutter. The former chairman of Marvel Entertainment sold Marvel to Disney for $4 billion in 2006, becoming its majority shareholder.
Disney has a small number of large institutional investors, a large number of small institutional investors, and an individual shareholder base. The company announced that Disney has hired an investor, ValueAct Partners, to support director candidates in exchange for Disney agreeing to discuss strategy with hedge funds.
Interestingly, it was 20 years ago that then-CEO Michael Eisner's reign collapsed at the company's annual shareholder meeting in Philadelphia. Activist investors Roy Disney (Walt's nephew) and Stanley Gold waged an aggressive campaign against him, claiming the company had lost focus and creative energy. Disney stripped him of his chairmanship after shareholders were consulted and 43% of shareholders withheld their support. He stepped down as CEO in 2006 and named Mr. Iger his successor.
Unlike Mr. Eisner, Mr. Iger's job is not in jeopardy, and the CEO still has a lot of financial and political capital. “This is not Michael Eisner's final days. Mr. Eisner was opposed by his heirs' family,” a Wall Street source said. Many of the issues Disney is addressing are industry-wide, and it's an industry he knows as much, if not more, than any other.
Loop Capital analyst Alan Gould explained the bull run in Disney stock in a note yesterday, noting, “If valuations weren't attractive, many activists wouldn't get involved.” He also said, “Disney has the best assets in the traditional media business.” The streaming business will soon be profitable. Movie studios have low profits. And the company could provide ESPN with an attractive strategic partner.
According to Loop, the bear case is that linear TV is in accelerated decline. Domestic theme park growth is near historic peak margins (competition with Universal's Epic Universe is expected in 2025). The trajectory of streaming profits is unclear. And ESPN couldn't find a partner on acceptable terms, making that possibility even more likely with the streaming deal. That said, he considers the joint venture a win for Disney, estimating it will recoup nearly half of its revenue, which should more than make up for the loss in revenue from cord-cutting.
Fox CEO Lachlan Murdoch said after results this morning that the new service will reach millions of “code nevers” without disrupting traditional bundles.
Disney will announce its earnings on a call at 4:30 ET after the market closes today.
