Why Peltz Isn’t the Solution for Disney’s Problems
Here’s a shoutout to those tech folks—among many, many others—who are putting their lives on the line as members of Israel’s defense forces right now, responding to the Hamas attack over the weekend. It puts everything else into perspective. For more details on Israeli tech folks’ involvement, see our story here.
Meanwhile, Nelson Peltz has jumped back into the Disney fray, eight months after he abandoned his last threat of a proxy fight. Since then, Disney stock has plunged 27% to a low of around $80 last week, as the challenges facing the entertainment industry have deepened. Peltz now wants several seats on the entertainment company’s board, according to a report in The Wall Street Journal. If he doesn't get them, he may mount a new proxy contest, the WSJ said. He believes Disney shares to be “significantly undervalued” and thinks the company needs a “more focused” board that is aligned with the interests of shareholders. Peltz’s views about the board sound suspiciously like blather. There’s no doubt Disney stock is ridiculously cheap, although it doesn’t take a Wall Street genius to figure that out.
After all, the last time Disney stock has traded around $80 was in 2014! More significantly, consider that in August, research firm MoffettNathanson estimated the value of Disney’s theme park and consumer products business to be around $71 a share, based on prevailing valuations of other theme park and cruise ship stocks. In other words, the market is now putting very little value on Disney’s vast entertainment businesses. Some of those businesses are deeply troubled, given how cord cutting has laid waste to the once-powerful ESPN business. But Disney’s streaming operations and its film studios, not to mention its library of content, are enormously valuable. The declining traditional TV networks have some value. In other words, at current prices, Disney is a screaming buy.
It makes sense, then, that Peltz has been accumulating more shares. What doesn’t make sense is the idea that he would mount another proxy fight if he doesn’t get offered seats on the board. After all, it’s not like CEO Bob Iger is sitting on his hands. Iger has dropped strong hints that he is open to selling the ABC television network and some of the cable channels, and at least partnering on ESPN. He has slashed costs and is raising prices on streaming. Iger is far from perfect, but he should be credited with being more upfront about the problems facing entertainment than most other executives in his position. It’s hard to imagine anyone else could have done a better job at dealing with Disney’s myriad struggles.
You could argue that Iger should be more open to selling Disney entirely, but he hasn’t ruled that option out. All he has done, when this came up on the last earnings call, is point to the global regulatory climate, which is a real obstacle to a sale. Otherwise, various restructuring options appear to be on the table. Iger is showing every sign of understanding the urgency of fixing Disney. Maybe the company should give Peltz a single board seat—that he can occupy himself—just to shut him up, although it’s doubtful he can contribute much of any value.
Riccitiello’s Disunity
You can always tell when a CEO’s exit hasn’t been planned. For one thing, there’s no replacement lined up and someone is appointed temporarily to fill the job. In the case of game engine developer Unity Software, which announced the sudden departure of CEO John Riccitiello on Monday, the situation is even more stark. Its board found an outsider to come in as interim CEO. In other words, there wasn’t someone inside who could take the job, even for a little while.
Private equity firm Silver Lake, one of Unity’s biggest shareholders, surely played a role in the decision. The temporary replacement is James Whitehurst, a former Red Hat CEO who is currently a special adviser to Silver Lake, although he also serves on various boards.
The sudden ouster of Riccitiello follows reports of an outcry among software developers over a new pricing model he announced in September. The New York Times reported earlier this month that developers have threatened to leave Unity over the new pricing model. Unity’s exposure to mobile developers increased after its acquisition last year of ironSource, an Israeli firm that makes tools to help mobile developers build their businesses. Unity’s stock price has fallen 37% since mid-July as investors panned the deal.
This is the second time Riccitiello has departed a top tech job under a cloud. He previously ran Electronic Arts for several years until 2013, when he stepped down as a mea culpa for “shortcomings” in the gaming firm’s financial results that year.