Peltz may be overreaching with Disney proxy fight

Activist investor Nelson Peltz spent about 30 minutes Thursday morning in a wide-ranging interview with CNBC’s Jim Cramer and David Faber about why he wants to invest. bottom. disney board sheet.

But his argument barely touched on what should be his biggest point: Disney’s consistent neglect of CEO succession planning.

Pertz mentioned in his fund slide presentation Disney’s failures under the leadership of past CEOs Bob Iger and Bob Chapek. He said that if the presentation had to be narrowed down to its core, it would revolve around Disney’s poor stock performance and Trian’s track record of value creation. It peaked, but is now trading near an eight-year low, he said. Shares rose about 3% on Thursday.

But Disney’s poor performance in 2022 netflixof stagnant growthDisney’s stock price surge in 2021 was due to the same phenomenon. Investors charge for streaming services, resulting in a large increase in subscribers. Both Disney and Netflix are down about 38% in the last 12 months. Other media stocks have fallen further. Paramount Global Stocks fell 45%. warner bros discovery Shares have fallen nearly 50% since AT&T merged WarnerMedia and Discovery on April 8.

Peltz said Disney CEO Bob Iger and the board overpaid 21st Century Fox in 2019, a deal he denounced. Company’s decision to abolish dividends during pandemicBut seeking a seat on the board based on Iger’s track record in making acquisition decisions won’t win the support of many investors. Iger’s string of deals during his CEO tenure — acquisitions of Pixar, Lucasfilm, and Marvel — pre-Fox acquisitions were some of the best in the history of the media industry.

Trian also said Disney’s direct-to-consumer strategy is “flawed,” despite “reaching similar revenues as Netflix and having a significant IP advantage.” Netflix started the streaming business a few years ago Disney debuted Disney+ in 2019. It’s no surprise that Netflix beats Disney and all other streaming services in terms of profitability and free cash flow generation.

Peltz planning a proxy contest, and his strongest argument to shareholders should not be about Iger’s performance as CEO. Rather, it should be about the board’s inconsistent planning for a post-Eiger world. Iger made history during his first 15-year CEO tenure, ditching potential successors such as Jay Rasulo, Tom Staggs and Kevin Mayer. When he stepped down from his CEO position in 2020, he didn’t leave the company entirely, feeling that his hand-picked successor, Chapek, was undermined by his presence at the age of 18. Set the moon stretch.

Now that Iger is back, Disney’s board has ordered him to find a successor within the next two years. Iger’s track record suggests that succession planning is his one area where he really struggles.

“Eiger has historically dominated the succession process, but Iger should not choose, the board should choose,” said Charles Elson, founding director of the Weinberg Center for Corporate Governance. “For almost 25 years, Disney has had governance issues with its succession that have left it vulnerable to activist intervention.”

Part of Trian’s pitch to investors is succession issues, but that doesn’t come out until slide 27 of the 35-slide presentation. Most of Peltz’s allegations center on Disney’s underwhelming stock performance, its decision to scrap its dividend, his claims that the Fox deal didn’t work out, how the hypothetical Sky deal didn’t work, He also told CNBC that Disney would have to buy Comcast’s 33% stake in Hulu or “get out of the streaming business.” .

Disney has responded to last year’s slump in its stock price by bringing back Iger, a CEO generally respected by both employees and investors alike. Disney will also soon have a new chairman of the board. Peltz’s argument that Iger needs Trian’s help in strategic decision-making just months after returning to work may not be persuasive.

It’s a much easier case that Disney’s board and Iger have consistently botched succession plans. Trian said in his presentation that Disney’s shareholder engagement process is “one of the worst (if not the worst) of all the companies we’ve ever interacted with.”

It’s possible Disney doesn’t want Peltz on the board. Because he forces the issue of his succession and limits Iger’s ability to stay as CEO for more than two years, as Trian pointed out in his presentation (on slide 28), the Disney board extended Iger’s retirement date five times between October 2011 and December 2017.

Perhaps Peltz needs to refine his message to focus on it.

Disclosure: Comcast is the owner of CNBC’s parent company, NBCUniversal.

Watch: Disney is more than just a media company, says Trian’s Nelson Peltz