Disney Board Seat, Operational Improvements Sought by Trian
Activist investor accumulated more than $800 million in Disney stock earlier this month
Trian Fund Management LP has purchased a sizable stake in Walt Disney Co. DIS -2.24% and is seeking a seat on its board as it pushes the entertainment giant to make operational improvements and cut costs, according to people familiar with the matter.
Earlier this month, the influential activist investor bought more than $800 million of Disney stock in the days after the company’s lackluster fiscal fourth-quarter earnings report, the people said. Trian has studied the business for a long time, they added.
The stake isn’t as large as Trian would like it to be and will likely grow, subject to market conditions, they added. Given Disney’s market capitalization of some $167 billion, the stake amounts to just about 0.5%.
Executives at Trian, which was founded by Nelson Peltz, Ed Garden and Peter May, have begun a dialogue with Disney leadership about having Mr. Peltz join the company’s board, according to the people.
Trian officials argue that Disney in recent years has erred in its mergers-and-acquisitions strategy, the people said. For example, Trian believes Disney vastly overpaid when it spent $71.3 billion to bring under its umbrella the major entertainment assets of 21st Century Fox Inc. Fox’s corporate sibling, News Corp, owns The Wall Street Journal.
The firm also doesn’t think Disney should ever have been in the bidding for pay-TV giant Sky PLC, the people said. Ultimately, Comcast Corp. acquired Sky in 2018 for nearly $40 billion.
“We welcome the views of all our investors,” Disney said in response to a letter it received in August from another activist investor, Third Point LLC, which was pushing for a board refresh and other structural changes. The company said at the time that its board has been continuously refreshed, with an average tenure for members of four years.
CNBC host Jim Cramer last week reported on Trian’s Disney stake without giving details.
The move is sure to add to pressure on Disney Chief Executive Bob Chapek, who is already grappling with challenges that have helped send the company’s shares down by about 41% so far this year. Among them: Wall Street’s enthusiasm for streaming-video businesses has cooled.
Earlier this month, Disney said it planned to make some layoffs in addition to cuts to its marketing and content budgets, after the company reported weaker-than-expected fourth-quarter earnings and sales. Disney reported wider losses in its streaming business that overshadowed the strong performance of its theme parks.
Disney’s flagship streaming business, Disney+, lost $1.47 billion in the quarter, more than twice the year-earlier loss and 38% wider than what analysts polled by FactSet had predicted.
Since Disney+ launched three years ago, it has lost more than $8 billion as it has expanded rapidly. In the three months ended Oct. 1, Disney+ added 12.1 million net new accounts, bringing its global total to 164.2 million subscribers.
Disney said that in its latest quarter it recorded “peak losses” in streaming and expects those losses to start to narrow beginning in the current quarter. Mr. Chapek said Disney+ is still on track to be profitable in 2024, “assuming we do not see a meaningful shift in the economic climate.”
Activist investor Dan Loeb’s Third Point bought a stake in Disney earlier this year and called on the company to buy the rest of Hulu, explore spinning off ESPN and refresh its board. Mr. Loeb praised gains in Disney’s streaming subscriber base, but also asked the company to more aggressively slash expenses.
Since then, Mr. Loeb has backed off his request that Disney spin off its popular sports-television network. And in September, Disney added Carolyn Everson, a veteran tech and media executive, as a director, and Mr. Loeb agreed to a standstill over the makeup of the company’s board.
Still, the activist advances present fresh challenges for Mr. Chapek, who took over the CEO job in February 2020, right before the coronavirus pandemic shut down his company’s theme parks and the nation’s movie theaters. In June, Disney’s board said it voted unanimously to renew Mr. Chapek’s contract for another three years.
The renewal was closely watched after a high-profile dust-up earlier this year with Gov. Ron DeSantis of Florida. Disney, which employs more than 70,000 in the state, stepped into the debate over a controversial education bill in Florida that limits classroom instruction on gender identity and sexual orientation for children through the third grade and says material for older children must be “age appropriate.”
Strive Asset Management, an activist investor that has been a critic of what has been dubbed environmental, social and governance, or ESG, investing, sent a letter to Mr. Chapek in September arguing that the company should no longer take public positions on political issues that aren’t related to its core business.
Trian is known for encouraging changes at the companies it targets, such as the breakup or sale of underperforming divisions or moves to improve efficiency and better use capital. It often seeks board representation and tries to avoid public spats, unlike some of its more pugnacious rivals.
The investment firm is accustomed to hunting large prey, having previously targeted companies including Procter & Gamble Co. , DuPont de Nemours Inc. and General Electric Co.
Mr. Peltz has previously served on the board of other consumer-goods companies including Oreos maker Mondelez International Inc., Kraft Heinz Co. and, more recently, Unilever PLC, the maker of Dove soap and Hellmann’s mayonnaise.
Trian is also the largest shareholder of burger chain Wendy’s Co. and said earlier this year that it was exploring an acquisition or another potential deal for the fast-food restaurant, as it sought to improve sales and manage rising costs.