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Walt Disney makes its case for rejecting activist shareholder

Walt Disney, opens new tab said on Tuesday it “does not endorse” the candidates nominated by activist shareholders in a preliminary proxy filed with the Securities and Exchange Commission.

Disney Chief Executive Bob Iger, in a letter to investors, said the company has embarked on an “unprecedented transformation,” making management changes and streamlining operations to become more cost-efficient. It is on track to achieve roughly $7.5 billion in cost reductions – about $2 billion more than it originally targeted.

Iger said Disney has prioritized making its streaming business profitable, turning ESPN, its sports media brand, into the “preeminent” digital platform, improving the output and economics of its film studios, while “turbocharging” the growth at its theme parks.

“We have already made considerable progress on all four of these opportunities, and we are continuing to move forward with urgency and clarity,” Iger wrote, urging shareholders to support Disney’s 12 nominees – and rejecting those candidates put forward by investor groups Trian and Blackwells.

Disney, like other media companies, is contending with an unprofitable streaming business, declines in its traditional television business and disappointments at the movie box office. It also has an ongoing legal battle with Republican presidential candidate and Florida governor Ron DeSantis and is laying plans for CEO succession.

Activist investor Trian Fund Management said in December it nominated two independent director candidates for Disney’s board – its chief executive, Nelson Peltz, and former Disney Chief Financial Officer Jay Rasulo – saying the company had been underperforming despite its “unrivaled customer loyalty” and “irreplaceable intellectual property.”

Blackwells Capital put forth a trio of nominees as alternatives to investors who want a fresh perspective on Disney’s board.

Earlier this month, Disney’s board voted to reject Trian’s nominees and Blackwells’ nominees. The directors said Nelson Peltz “had not actually presented a single strategic idea for Disney,” and that he lacked experience in media and technology sectors.

Peltz abandoned an earlier proxy contest last February, though the latest Disney filing describes his relentless campaign to secure a board seat. Peltz and former Marvel Entertainment Chairman Ike Perlmutter sought the board seat 24 times, from the summer of 2022 through March 28, when Perlmutter’s employment was terminated, according to Disney’s filings.

The activist investor’s relationship with Perlmutter “created significant concern” for the directors, who noted his “fraught history” with Iger, who had terminated him and previously removed him from his executive position at Marvel in 2015.

Trian declined to comment. Perlmutter could not be reached for comment.

Peltz renewed his interest in a board seat in June, prompting Disney’s board to begin actively searching for qualified candidates with experience relevant to the media company. This process led to the addition of James Gorman, former chief executive of Morgan Stanley, and Jeremy Darroch, a veteran media executive and former chief executive of Sky, as directors.

Iger informed Peltz of the board’s decision on Nov. 30 and extended an opportunity for Peltz and Trian to present their ideas to the board. Peltz declined the invitation – saying he would only consider such a discussion if the board reconsidered its decision regarding representation, according to the filing.

Trian notified Disney on Dec. 14 that it intended to nominate Peltz and former Disney Chief Financial Officer Jay Rasulo to the board.

Rasulo served as Disney’s chief financial officer, resigning in 2015 when he was passed over for the role of chief operating officer. Disney said Rasulo has held no other executive job at a public company since leaving Disney eight years ago, and that his perspective on the company was “stale.” The company also said his tenure as a director at iHeartMedia did not lead to strong returns and that his relationship with Perlmutter also raised concerns.

Rasulo could not be reached for comment.

Peltz has criticized the company’s stock performance, which has fallen to half its peak in March 2021, when investors rewarded Disney for surpassing 100 million subscribers to its namesake streaming service and pledged a “robust pipeline of content” to fuel its continued growth.

The activist argued Disney’s streaming business is underperforming some of its peers, and that its films continue to disappoint in theaters, which threatens Disney’s vaunted “flywheel,” in which other parts of the company capitalize on a popular film through merchandise sales and theme park attractions.

Peltz maintains the “root cause” of Disney’s underperformance is that its board is “too closely connected to a long-tenured CEO,” Bob Iger. He said it is time to reach the company’s board, putting forth himself and Rasulo as offering expertise and a fresh perspective.

Disney also reported Iger’s 2023 compensation totaled nearly$31.6 million, representing $865,385 in salary, $16.1 million in stock and $10 million worth of options. Reuters

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