Activist Disney Investor Ends Battle for Board Seat

Behind the scenes at Disney on Thursday, senior executives were giddy. The activist investor Nelson Peltz, in a surprise morning phone call to CNBC, had ended his attempt to install himself or his son on Disney’s board and shake up the company.

“Toodle-oo!” one Disney television executive texted a reporter, along with a screen shot of the CNBC headline.

In truth, it was a victory for both sides. Disney was able to avoid adding an unwanted activist to its board. Mr. Peltz was able to say he succeeded in pushing Disney to cut costs, revamp its streaming business, refocus on profit growth and reinstate its dividend, which it suspended in the early days of the coronavirus pandemic. Disney aggressively addressed each of those items on Wednesday in an effort to short-circuit Mr. Peltz’s proxy battle, which had been set to culminate at Disney’s annual shareholder meeting on April 3.

“The proxy fight is over,” a representative for Trian Partners, an investment firm led by Mr. Peltz, said in a statement. “This is a win for all shareholders.” Trian accumulated roughly $1 billion in Disney shares at a price of roughly $90 a share as part of its campaign. Disney was trading at about $110 on Thursday.

Disney’s board responded by praising Robert A. Iger, Disney’s chief executive. In the fall, in part to thwart Mr. Peltz, who was privately pushing to join the Disney board, Disney fired Bob Chapek as chief executive and rehired Mr. Iger, who held the position from late 2005 to early 2020. Mr. Chapek’s troubled reign lasted less than three years.

“We are pleased that our board and management can remain focused without the distraction of a proxy contest, and we have tremendous faith in Bob Iger’s leadership and the transformative vision for Disney’s future he set forth yesterday,” Disney’s board said in a statement.

Carrying out that vision will be difficult. Disney, like other big entertainment companies, is scrambling to make streaming profitable as a way to offset traditional television, which is in a free fall. In Disney’s most recent quarter, operating profit from traditional television (the ABC broadcast network and 15 cable channels, led by ESPN) totaled $1.3 billion, a 16 percent decrease from a year earlier. Disney attributed the declines to lower advertising revenue, reflecting a drop-off in viewership, especially overseas, as more people forgo cable and satellite hookups.

Across Hollywood, companies are slashing budgets. Warner Bros. Discovery has already cut thousands of jobs as part of a $3.5 billion retrenchment. But the playing field is not level: Apple and Amazon continue to pour money into their streaming services, making it more difficult for older companies like Disney to compete for filmmakers, show creators and stars.

Mr. Iger must also contend with Ike Perlmutter, 80, the irascible chairman of Marvel Entertainment and a significant Disney shareholder in his own right. Mr. Perlmutter contacted Disney board members and senior executives six times between August and November to push for Mr. Peltz to join the board. Does Mr. Perlmutter remain at Disney?

A skirmish in Florida between Disney and Gov. Ron DeSantis continues to simmer. In a reversal from last year, the Florida House voted on Thursday to allow Walt Disney World to keep tax benefits enacted in the 1960s. Under the bill, which headed to the State Senate, Disney would no longer be able to choose the members of a board overseeing the resort’s tax district; the governor would appoint all five.

On Wednesday afternoon, Mr. Iger delivered quarterly financial results that broadly pleased investors. Profit and revenue exceeded Wall Street’s expectations. Losses in Disney’s streaming division abated. Walt Disney World and Disneyland, in California, generated $2.1 billion in profit, an increase of 36 percent from a year earlier.

Those were largely Mr. Chapek’s results. The quarter was two-thirds finished by the time Mr. Iger took over in late November.

Mr. Iger, however, laid a framework for Disney’s future on top of the numbers, one that left Mr. Peltz with little ground to stand on. Disney would cleave costs not by a little, Mr. Iger said, but by $5.5 billion and eliminate 7,000 jobs. Disney’s streaming businesses would be managed differently as part of a restructuring designed to galvanize Disney’s film and television studios and focus on profitability. The company’s dividend would be restored by the end of the year.

“Our cost-cutting initiatives will make this possible,” Mr. Iger said of the dividend. “And while initially it will be a modest dividend, we hope to build upon it over time.”

It added up to a master class in dismantling a corporate threat. Mr. Iger came across as tough, cleareyed and decisive. He even handed out candy to Disney fans, announcing plans to build an “Avatar” attraction at Disneyland and new installments in the “Toy Story” and “Frozen” franchises.

Disney shares rose 5 percent in after-hours trading on Wednesday following the results. “To Profitability … and Beyond!” Michael Morris, a Guggenheim Securities analyst, wrote in a report to clients. Several other analysts raised their outlook for Disney shares.

Before dawn on Thursday in Los Angeles, Mr. Iger continued his campaign on CNBC. He said that “everything was on the table” regarding Hulu, the general-audience streaming service that Disney controls. Some analysts have wondered if Disney should sell Hulu, but Disney previously signaled that it intended to double-down on the service. Comcast owns a 33 percent stake in Hulu, and Disney had been trying to buy it out.

“I’m concerned about undifferentiated general entertainment, particularly given the competitive landscape that we’re operating in, and we’re going to look at it very objectively,” Mr. Iger said.

Mr. Peltz had also been pushing Disney to clean up its messy succession planning. Mr. Iger had delayed his retirement from Disney at least three times and, in some ways, seemed reluctant to leave the company when he did. In bringing him back, the board gave him two years to steer the company onto the right path and groom another successor.

Mr. Iger told CNBC that work to identify a successor was “already underway,” with Disney’s incoming board president, Mark Parker, scheduled to lead a private meeting about it on Friday.

“My plan is to stay here for two years,” Mr. Iger said. “That’s what my contract says. That was the agreement with the board.”

Shortly afterward, Mr. Peltz phoned CNBC to say Mr. Iger’s restructuring announcement indicated Disney “plans to do everything we wanted them to do.”

“We wish the very best to Bob, his management team, the board,” Mr. Peltz said. “We will be watching. We will be rooting.”

Shares of Disney closed down about 1.3 percent on Thursday, roughly in line with the market.

“Peltz has always been more rational and focused on specific goals than many of his ego-driven competitors,” said John Coffee, a professor of corporate governance at Columbia Law School. “I see this as a case in which rationality has triumphed and Trian has no need to fight a battle that it has effectively already won.”

Besides, carrying out a proxy battle would cost Trian roughly $25 million, according to a securities filing.

“Part of activism is always realizing that the aim of an activist is not to get board seats,” said Patrick Gadson, a co-chair of the shareholder activism practice at the law firm Vinson & Elkins.

“They don’t get paid to get board seats. They make money by, when it all boils down to it, stock price appreciation.”

John Koblin contributed reporting.