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Stock price has jumped after many shareholder-friendly changes—without adding rancor to the board

War may be hell, but it has also been great for Disney DIS 1.14%increase; green up pointing triangle shareholders. What the peace will look like is the real question.

The fight over who exactly sits on the entertainment giant’s board is in its final stages, with the company’s annual meeting slated for Wednesday. Shareholders are choosing between three options promulgated by Disney and two activist investors. The result wouldn’t necessarily be a major shake-up—one activist proposal calls for replacing two members of the 12-person board, while the other would basically add three more members.

But it has been rancorous nonetheless, particularly because both campaigns have been sharply critical of the company’s performance under the management of board member and Chief Executive Bob Iger. A new wrinkle was added last week when one of the activists, Blackwells Capital, sued Disney over its deal with another activist, ValueAct, that was announced earlier this year.

That performance is complicated by the fact that Disney’s stock has been on a tear of late. The share price has jumped 35% since the start of the year—more than triple the S&P 500’s performance, and even exceeding that of streaming star Netflix. Meanwhile, Warner Bros. Discovery and Paramount Global—Disney’s two closest peers in the traditional media space—have seen their shares sink by more than a fifth each over that time.

The two main sides in the proxy battle, Disney and activist Trian Partners, could each plausibly claim some credit for those gains. Disney’s past two quarterly reports have been particularly well received by investors given its focus on curbing streaming losses, improving theme-park performance and charting a new path for its sports business. Its most recent report in early February came with a raised dividend and an investment in Epic Games, helping spark the biggest single-day jump the stock has experienced in more than three years.

But many of the moves Disney has made have come as the company has faced the specter of a bruising proxy fight. Trian’s Nelson Peltz first raised the prospect in January 2023—just weeks after Iger returned to the CEO role after the ouster of his successor, Bob Chapek. A strong quarterly report the following month that included the announcement of a significant cost-cutting program persuaded Peltz to stand down.

But subsequent struggles that include the continued shrinking of the company’s cable-television business and disappointments at the box office persuaded Peltz to try again. He launched his latest proxy challenge in late November, about a month after Disney’s stock touched its lowest point in nearly a decade.

A clear victor isn’t yet in sight. Disney has garnered important endorsements from major, high-profile shareholders such as Star Wars creator George Lucas and Laurene Powell Jobs, as well as descendants of the Disney family along with shareholder-advisory firm Glass Lewis. But two other proxy advisers—Institutional Shareholder Services and Egan-Jones—support adding Peltz to the board. Just 22% of shares had been cast as of Tuesday, March 26, according to reporting by The Wall Street Journal.

Shuffling a few seats on the board won’t change Disney’s most pressing challenges. They include a declining cable-TV empire as consumers cut the cord at a growing rate and a theatrical-movie industry still coming to grips with the pandemic’s aftermath. Adding rancor to the board could also complicate the remaining hurdle of finding a successor to Iger after the botched leadership transition the last time around. Disney hasn’t been sitting still on this matter either, having recently added James Gorman to the board after the former Morgan Stanley CEO executed what has been regarded as a smooth leadership transition at the investment-banking giant.

Gorman sits on the Disney board’s planning committee with former Nike CEO Mark Parker. In its recommendation report, Glass Lewis said “a formal board committee composed of otherwise well-respected senior executives represents a strong step in the right direction by fostering direct accountability to Disney shareholders.”

The deal with ValueAct is also notable. The activist has previously targeted companies such as Microsoft, Salesforce and the New York Times. It ended up scoring a board seat at Microsoft as the company was seeking a successor to outgoing CEO Steve Ballmer—a move that paved the way for the appointment of Satya Nadella and the company’s highly successful pivot to cloud computing and artificial intelligence.

Disney’s Life-After-Iger will likewise be a key turning point. The fact that the company’s board has already seen what happens when this goes wrong will be extra motivation to get it right this time.

- Federal Express Corporation (“FedEx Express”), a wholly owned subsidiary of FedEx Corporation (“FedEx”), announced today that its agreement to provide domestic transportation services for the United States Postal Service (“USPS”) will expire by its terms on September 29, 2024.

The parties were unable to reach agreement on mutually beneficial terms to extend the contract, and negotiations concluded on March 29, 2024, following extensive discussions.FedEx Express will continue to provide air transportation services domestically and to Puerto Rico through the contract’s expiration on September 29, 2024.

SK Hynix and Micron have gained on the market leader, but Samsung’s financial and tech capacity are being brought to bear

South Korean technology giant Samsung Electronics 005930 -0.49%decrease; red down pointing triangle has fallen behind in the artificial-intelligence race—at least in the first heat.

It would be foolish to count it out, though. Recent signs indicate it might be narrowing the technological gap with rivals SK Hynix 000660 1.37%increase; green up pointing triangle and Micron MU -1.05%decrease; red down pointing triangle in high-performance AI memory chips. Even if it takes longer than expected to catch up, a tighter overall memory market thanks to the AI boom could still be a significant tailwind for Samsung.

Nvidia’s AI chips have been selling like hot cakes since the rise of generative AI apps such as ChatGPT. Memory-chip makers have, in turn, sold out their high-performance products to Nvidia and others. High-bandwidth memory, or HBM, offers enhanced data-processing speed, which is crucial for AI number crunching.

Korea’s SK Hynix has taken an early lead in HBM. It is virtually the only supplier to Nvidia for the latest-generation memory chip, called HBM3. Samsung only started mass-producing HBM3 in the second half of last year. It does produce earlier generations of HBM chips used by some slower AI chips, rather than the most cutting-edge ones made by Nvidia.

And now SK Hynix has started mass producing its next-generation chips, called HBM3E. SK’s smaller rival Micron, which essentially skipped the previous generation, is doing the same. Both companies said they have already sold out their full HBM production volume this year and are already filling orders for next year.

Even so, Samsung is working hard to catch up. The company expects to mass-produce next-generation HBM chips in the first half of this year. That would leave it about a fiscal quarter rather than a full year—as with the previous generation of HBM chips—behind the competition.

Moreover, on March 19, Nvidia Chief Executive Jensen Huang said the company is in the process of testing Samsung’s next-generation HBM chips, according to Japan’s Nikkei. An interesting aside: Huang wrote “Jensen Approved” along with his signature on Samsung’s HBM3E product display at Nvidia’s AI conference this March.

Samsung will have to ensure its products are up to standard while simultaneously ramping up capacity. But given the extremely tight supply situation, Nvidia has every reason to want an additional supplier.

If Samsung does manage to catch up, it could tap in to a fast-rising segment of the memory market.

Bernstein Research estimates HBM sales will expand to 16% of total industry revenue from DRAM, a type of chip used as working memory, this year. Goldman Sachs, in a report dated March 22, raised its estimate of the future HBM market to $23 billion by 2026: That would represent a 10-fold increase from $2.3 billion in 2022.

But the jump in demand for HBM chips will also help keep the overall memory market tighter as more capacity is used to make these high-margin chips. That shift will benefit Samsung, which has a cost advantage over its peers in conventional memory products. The rising use of AI applications might also require more powerful devices with higher memory capacity in general.

Samsung’s shares have sharply lagged behind rivals SK Hynix and Micron, whose values have more than doubled since the start of last year. That is partly because Samsung isn’t a pure memory-chip company. But it also reflects slower progress in HBM.

Samsung, which is the market leader for the overall memory market, now finds itself in the uncomfortable position of catching up. Sustaining that sprint will be expensive, but a tighter overall memory market—and a potential assist from Nvidia—would be a big help.

Data centres’ need for reliable power supply set to soar

A surge in demand for electricity to feed data centres and to power an artificial intelligence revolution will usher in a golden era for natural gas, producers say.

AI’s soaring energy needs will rise well beyond what renewable energy and batteries can deliver, executives argue, making more planet-warming fossil fuel supplies crucial even as governments vow to slash their use.

“It will not be done without gas,” said Toby Rice, chief executive of EQT, the country’s biggest gas producer, of the coming AI boom.

Rice said the tech sector would offer a bonanza for shale producers comparable to the US’s liquefied natural gas industry, whose rapid emergence in recent years offered drillers new customers for their product.

“We’ve got a really amazing emerging market with LNG. But there’s a new emerging market that people are getting equally as excited about — and it’s power demand,” Rice said.

The US government has offered sweeping incentives to clean energy developers in a bid to rapidly decarbonise the electricity grid. But fossil fuel executives said renewables would not be reliable suppliers on their own for energy-hungry data centres.

Energy Capital Partners, a large private investor with green and fossil fuel power assets, said expanding gas-fired generation would be critical in supplementing renewable supplies to data centres.

“Gas is the only cost-efficient energy generation capable of providing the type of 24/7 reliable power required by the big technology companies to power the AI boom,” said Doug Kimmelman, ECP founder and senior partner. 

It “bodes well” for gas consumption, said Colin Gruending, an executive vice-president at pipeline group Enbridge. “Intermittent renewables is not going to cut it.”

The bullish outlook from the US fossil fuel producers comes amid a period of weak natural gas prices, which has forced a consolidation among shale producers — and an effort to find new sources of demand.

It also marks a contrast with pledges by Big Tech to slash greenhouse gas emissions and fuel the AI revolution with green energy, rather than fossil fuels. Climate scientists have warned that expanding gas infrastructure risks undermining the global efforts to contain global warming.

But data centres’ voracious power needs are set to rocket, as cloud storage facilities, crypto mining and AI all add strain to grids. Microsoft alone is opening a new data centre globally every three days.

These power hungry operations will together consume more than 480 terawatt hours of electricity, or almost a tenth of total US power demand, by 2035, up from 4.5 per cent in 2025, according to S&P Global Commodity Insights. 

The International Energy Agency estimates power demand from data centres globally could top 1,000 TWh by 2026 — double 2022 levels and an increase equivalent to Germany’s total power demand.

Dominion Energy, which supplies Virginia’s fast-growing data centre sector, said in a recent strategic plan that until zero-carbon energy could offer constant power, gas units would be the “most affordable and reliable” option.

Gas-fired generation accounts for more than 40 per cent of US power demand, far more than other fuels, and cheap shale supplies have eaten into dirtier coal’s share of generation in the past decade. Another 20 new gas-fired power plants are due online in 2024 and 2025 to meet demand, according to federal projections.          

Producers’ plan to capitalise on Big Tech’s energy needs comes even as companies such as Google and Microsoft have set ambitious goals to use only certified green electricity to power their operations in the coming years.

If they follow through, it could pose a threat to fossil fuel producers’ rosy outlooks for their gas, analysts said.

“Most of the new demand growth will be met by carbon-free generation resources,” said Xizhou Zhou, head of power and renewables at S&P. The group estimates that gas-fired power generation will fall by the end of the decade, while green energy generation soars.

Peter Herweck, head of energy management group Schneider Electric, also doubted that gas would benefit as much as people selling the fossil fuel claimed.

“If you talk to the oil people they are going to say the only way we can meet this energy demand is to use fossil fuels, but many of the customers of these data centres have made net zero CO₂ commitments so they will say the power has to be renewables.” 

The speed of the revolution is breeding uncertainty in forecasts.

“We figured at some point over the next few years, we’d start to see a downturn [in gas use]. I think that downturn has gone further and further [away] in time,” said Rich Voorberg, president of Siemens Energy North America, an energy technology group.

Brokerage that handled sale of Signature Bank loans estimates $670bn of debt is ‘potentially troubled’

Banks will have to cut their exposure to commercial real estate because of a $2tn “wall” of property debt coming due in the next three years, according to a leading US brokerage. 

“Banks will be under pressure,” said Barry Gosin, chief executive of Newmark, which handled $50bn of loan sales for failed Signature Bank.

Post-financial crisis regulation meant some lenders would need “to liquidate their loans or find other ways to reduce their weight in real estate”, he added, whether by syndicating the debt, doing risk transfer deals — where other investors agree to take on the risk of losses — or ceasing new lending to the sector. 

Newmark, a real estate advisory and brokerage company, said the estimated $2tn of US commercial real estate debt maturing between this year and 2026 would have to be refinanced at much higher interest rates. 

According to US Mortgage Bankers Association data provided by Newmark, $929bn of commercial real estate debt will need to be repaid or refinanced this year alone.

“We are at the beginning of the impact of this wall of loans,” said Gosin, who has led Newmark for four decades. “A chunk of those will be fully underwater, a chunk of those will be snorkelling and a chunk [will be recapitalised with] more equity.” 

The company estimates that $670bn of the loans maturing by 2026 are “potentially troubled”. Real estate investors have been hit by rising interest rates, which have increased their financing costs and pushed down property values. 

The main trouble spots in the US commercial property market are offices and “multi-family” residential apartment blocks — where some operators overexpanded using cheap debt and have been hit by higher running costs. 

“Anyone who has invested heavily in office [property] in the last five years will have a problem,” said Gosin.  

Since the rise of working from home during the pandemic, US offices were “under demolished”, he said, with too many undesirable old buildings. Although there was demand for the best buildings, Gosin estimated that 50mn sq ft of office space “should be taken down” in New York City alone.

Strains in the real estate market have put pressure on the banks that provided cheap loans in the boom years. Selling the loans, sometimes at a discount, is a solution for some who have too much real estate on their books. 

For buyers, including wealthy individuals and private equity debt funds, these sales are an opportunity to snap up loans or gain control of the underlying assets at depressed prices. 

Patrick Arangio, vice-chair of CBRE’s loan sales business, said the volume of upcoming maturities was higher partly because of short-term extensions given between 2020 and 2023 as a result of the pandemic, the war in Ukraine and uncertainty about interest rates.

He said: “The sheer volume of loans requiring resolution in this relatively short period of time will lead to an elevated amount of loan sale product in the market in the near term and for some time to follow.”

Meanwhile, the market for the underlying properties has stalled because of the gap between bargain-hunting buyers and sellers unwilling to crystallise losses. Commercial real estate deal volumes were down 51 per cent last year in the US, according to MSCI. 

“We’ve hit bottom,” said Gosin, who expected that 2024 would be “a transition year from the bottom . . . to moderate activity” but it would not be “full throttle”.

Novo Nordisk and Eli Lilly, plus a clutch of rivals, aim to cut side effects while treating obesity-linked diseases

When Danish scientist Jens Juul Holst identified in 1986 that gut hormone GLP-1 stimulates insulin and suppresses appetite, obesity was far from the health problem it is now and a drug harnessing the finding was a distant prospect.

But with a billion, or 1 in 8, people at present classed as obese worldwide, the work on GLP-1 by Holst and other scientists has proved crucial to the development of two blockbuster injectable weight-loss drugs: Wegovy and Zepbound. Developed respectively by Novo Nordisk and Eli Lilly, they are now being prescribed to millions of people.

Wegovy has been on sale since only 2021 and Zepbound was approved just five months ago, but Novo Nordisk and Eli Lilly are already leading the development of the next generation of weight-loss drugs. Hoping to catch up and win a share of a market that is predicted to be worth up to $150bn by 2030 are dozens of biotechs and other pharma groups.

“We are looking at a new era where it’s possible to treat obesity in the same way it’s been possible to treat high blood pressure,” said Holst from his University of Copenhagen office.

According to health data company Airfinity, there are 232 anti-obesity medications at various stages of development, from pre-clinical studies on animals to late-stage, phase 3 trials.

The most advanced prospects are all based on GLP-1, generally in combination with other hormones. Targets include boosting effectiveness, developing a pill to replace the weekly injections, tackling conditions linked to obesity such as kidney disease, reducing the frequency of injections, and reducing common side effects such as nausea and muscle wasting.

Louise Chen, analyst at Cantor Fitzgerald, said the key question was: “Can someone hopscotch ahead of Lilly and Novo? I think it will be hard.” But she said believed new entrants would be able to break into the market “if the product is sufficiently differentiated”.

Eli Lilly and Novo Nordisk first received approval for GLP-1-based treatments — for diabetes — in 2005 and 2010 respectively. Both are now aiming to cement their leadership in weight-loss drugs: between them they have five new, and potentially more effective. treatments in phase 3 trials.

Among the Novo Nordisk candidates at this stage is CagriSema, a combination of GLP-1 and other proteins that is targeting average weight loss of more than 20 per cent, higher than 15 per cent for Wegovy and challenging the 21 per cent average weight loss of Zepbound. In addition to the phase 3 study, Novo Nordisk has launched a head-to-head trial of Wegovy versus Zepbound.

Meanwhile, Eli Lilly’s retatrutide drug, also in phase 3 trials, is based on three separate gut hormones. It cut average body weight by 24 per cent in early stage trials, the best result to date.

Novo Nordisk also has a promising candidate at an earlier stage of development: it announced in March that results from a preliminary phase 1 trial suggested its amycretin pill, combining GLP-1 and a pancreatic hormone, amylin, could be more effective than Wegovy.

“We have a very nice palette across the range of efficacy, safety and scalability and that allows us to be in the driver’s seat,” said Martin Holst Lange, Novo Nordisk’s vice-president of development.

“These guys keep raising the bar as everyone else is trying to catch up,” said Emily Field, an analyst at Barclays.

One pharma M&A adviser said new entrants would need more than just bigger reductions in body weight to avoid “falling between the cracks of current and next-generation obesity treatments”.

Many biotechs hoping to enter the market will aim for partnerships with larger groups, a well-trodden path in the pharmaceutical industry. Roche and AstraZeneca have already struck deals to buy or licence early stage weight-loss drugs.

One biotech with a promising drug is US-based Viking Therapeutics — its shares doubled after it published phase 2 trial results in February showing better weight loss than current drugs after 13 weeks.

Adam Steensberg, chief executive of Zealand Pharma, one of the smaller groups hoping to break into the market, believes consumers need to be offered something different.

“It’s not about more and more weight loss. It’s about similar degrees of weight loss but with the potential to better address specific [illnesses that occur with] obesity,” he said.

German pharma group Boehringer Ingelheim is commercialising a Zealand treatment for both obesity and liver disease that is set to launch by 2028. Zealand’s earlier drug candidates include a non-GLP-1 drug for obesity based on amylin that Steensberg said could reduce side effects such as nausea.

Investors are also excited about an experimental drug from US biotech Aardvark Therapeutics that combines GLP-1 and another digestive hormone, CCK, and could limit nausea and muscle wasting side effects.

Meanwhile Eli Lilly last year bought Versanis, a biotech developing an antibody treatment that aims to preserve muscle mass in patients taking weight-loss drugs.

Developing drugs that can also tackle illnesses associated with obesity is key to convincing more health systems to pay for them. So far 50mn Americans have insurance coverage for Wegovy and last month the FDA approved its use to cut cardiovascular risks in obese and overweight patients. It is also offered on the UK’s NHS, along with Mounjaro, the brand name for Zepbound in the country.

Offering “convenience” to patients was another way for new entrants to stand out, said Michael Yee, an analyst at Jefferies.

US biotech Amgen is working on a weight-loss injection that would be used monthly rather than weekly. According to preliminary data, it cut body weight by 14.5 per cent after 12 weeks, a similar result to the weekly injection being trialled by Viking Therapeutics.

But pills are the holy grail of convenience, making them a key development in the next generation of weight-loss drugs.

They tended to be cheaper and therefore preferable for health providers and patients, said Raymond Stevens, chief executive of Structure Therapeutics, which has a GLP-1 pill in mid-stage phase 2 trials. “The price is just too high today . . . so I think the oral pills will allow obesity drugs to be embraced at a large scale,” said Stevens.

Novo Nordisk’s main expertise is in “biological” medicines grown from living cells. In addition to the amycretin trial, it has oral semaglutide, a pill version of Wegovy, in late-stage trials.

But according to Holst, who has worked as a consultant for the company, it has struggled to develop small-molecule GLP-1 drugs, which are much easier and cheaper for manufacturers to produce at scale.

In the race to develop a small molecule pill, Eli Lilly’s phase 3 orforglipron was “a bit of a frontrunner”, Novo Nordisk’s Lange acknowledged, but he said it was not as effective as injectables.

Pills also generally require larger amounts of active ingredients because they are more easily broken down in the body. This is an added challenge when high demand for weight-loss drugs is already causing shortages in the US and Europe.

As more treatments come to market, some worry that societies will become too reliant on them, to the detriment of public health measures.

It is a view rejected by Holst. “More than half of the population wear glasses. There’s nothing immoral about improving your eyesight,” Holst said. “Here, you improve your lousy appetite regulation, which was made by the creator, by taking a pill. I don’t really see the problem.”

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