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Iger’s Crocodile Tears

bob iger
While Peltz has been heralding his “Restore the Magic” campaigns, Iger has been quietly pivoting Disney and consolidating his support—outfoxing the crocodile, as it were. Photo: Alberto E. Rodriguez/Getty Images for Disney Animation
William D. Cohan
March 10, 2024

At long last, Nelson Peltz, lovingly known to my loyal readers as “the Smiling Crocodile” for his past boardroom chicanery, dropped his long-promised white paper on Disney this past week. At 133 pages, Peltz’s PowerPoint passes the ostensible heft test, one important measure of relevance on Wall Street. But does it pass the substance test? To me, it’s a mixed bag. 

On the one hand, the latest version of his plan to “Restore the Magic” does a decent job of identifying Disney’s problems: the obvious and ubiquitously mentioned lack of a clear succession plan; the $14 billion lost to date in Disney’s direct-to-consumer businesses; the recent spate of films that have disappointed at the box office; the decline in Disney’s operating margins; the underwhelming returns, so far, on Bob Iger’s decision to spend $72 billion on the 21st Century Fox assets; the failure to take action, starting in 2015, when ESPN started shedding cable subscribers, and on and on. 

Nelson also took aim at the Disney board of directors. “We believe the Board suffers from a culture that impedes effective oversight,” Peltz wrote in the PowerPoint. “The Directors, in our view, lack focus, alignment and accountability, causing the Board to fail at fulfilling its primary responsibilities.”

The Smiling Crocodile also took issue with the idea that Iger has managed to solve some of Disney’s problems since he returned to the corner office in Burbank some 15 months ago. Peltz claims that Disney’s share price is “barely” higher than it was a year ago (not true, it’s up 15 percent). But his other assertions ring truer, including that Disney’s streaming business, with some $22 billion of run-rate revenue, is still losing money, with no timetable for profitability; that the studio business is still suffering from a lack of hits and has lost more than $200 million in the last quarter; that ESPN announced two recent strategic initiatives but without any meaningful details; and that the purpose of Disney’s recent $1.5 billion investment in Epic Games seems open-ended and vague. Peltz also has argued that, under Iger, Disney’s “culture” has become dysfunctional. “It appears that executives who express contrarian views risk being pushed out and that Disney’s culture seemingly rewards those who avoid debate,” he wrote in the white paper.

And yet, the 81-year-old hedge fund manager and co-founder of Trian, who has routinely pulled off C.E.O. defenestrations in the past, is certain to lose this proxy battle. After all, the most notable element of this white paper is that no one on Wall Street really cares. Will that force Peltz to capitulate before the shareholder vote on April 3? Alas, sometimes activist investors have to launch a doomed proxy fight just to prove they still can, as my friend Rob Kindler, the lawyer turned banker turned rainmaker at Paul Weiss, told me the other day.

While Peltz has been heralding his “Restore the Magic” campaigns, Iger has been quietly pivoting Disney and consolidating his support—outfoxing the crocodile, as it were. The Disney stock price keeps gaining; it currently sits around $110 a share, up 35 percent in the last six months. And this past week, Iger won the blessing of nine members of the Disney family, including some previously inhospitable to him. (My partner Matt Belloni also recently noted that the Peltz white paper was essentially a ripoff of documents produced by Elliott Management, another activist investor.) 

In fact, Peltz’s proxy fight for Disney has been a loser ever since he tried to pass off the 32.3 million Disney shares he speaks for (including the Ike Perlmutter tranche) as his own, when really Trian owns just 6.77 million Disney shares. Peltz also sold some 600,000 shares during the fourth quarter of 2023 for a nifty profit. What kind of alleged long-term-minded investor sells shares for a nice profit in the middle of a proxy fight?  

The Solution Problem

So, fine, let’s stipulate that Nelson has correctly identified the problems at Disney, even if he may be exaggerating for effect, here and there. But what about his proposed solutions? This, to me, is where the Trian argument truly falls apart. Nelson’s primary remedy is to put both him and Jay Rasulo, a former Disney C.F.O. (whom I had never heard of before Nelson put a spotlight on him), on the board. If shareholders were to grant them seats, they would replace Michael Froman, the new director of the Council on Foreign Relations, and Maria Elena Lagomasino, a former JPMorgan Chase executive. Nelson is a highly successful activist investor who used to be known as a corporate raider, once upon a time. There’s no disputing his record. He’s worth around $2 billion these days, and he’s in-laws with David Beckham. But even though he’s been around forever and knows his way around a boardroom, his knowledge of the Big Media industry is extremely limited. In the bio he included in the white paper, he doesn’t even try to argue that he’s a media expert, or even a media dabbler. 

Furthermore, I still don’t understand the logic of having two seats on a board of directors of 12 people—I know the Smiling Crocodile can be charming when he wants to be, but talk about going into a hostile environment, and one where he is certain to see his efforts marginalized. Some 30 pages of the presentation is devoted to the many failings of the Disney board; how is that going to make it easier for Nelson and Rasulo to accomplish their goals if and when they get on the board?

And it’s not as if his other proposed strategic initiatives are transcendently brilliant, either. After revamping the Disney board, he wants to make sure there’s a real succession process in place, while at the same time aligning management compensation with well-articulated goals and initiatives. Nelson also wants higher profitability for Disney. Who wouldn’t? But I’m not seeing the path he is proposing to get there, other than a vague call for Disney’s EBITDA margins to resemble those of rival Netflix by 2027. He also seems to be a proponent of jettisoning, to some degree or in some way, Disney’s legacy linear media assets. But that notion is highly opaque, too. He wants to “[r]ight-size legacy media business cost structure in light of industry dynamics,” he wrote, whatever that means. 

He’s also advocating a reboot of Disney’s once-vaunted “creative engine.” I’m all for that, and lord knows the company needs to find a path back for its creatives. But Nelson’s solution here is just to mention the Disney “flywheel” a few times and call it a day. (The “flywheel” is broken, Peltz argues. Clever stuff…) Finally, he wants to refine the company’s strategic goals. For instance, he wants to know how Disney is going to spend the $60 billion that Iger has earmarked for its parks businesses. That’s a legitimate question, for sure, but not one that putting Nelson or Rasulo on the board will help answer. He also hints at wanting to explore strategic alternatives for Disney’s “non-core linear assets,” without saying what those are or what “exploring” actually means.

For instance, Nelson is silent on Disney’s ongoing negotiation with Comcast to acquire the one-third of Hulu it doesn’t already own. Is that a good purchase, Nelson? It’s going to cost Disney a minimum of $10 billion. Is that the best use of Disney’s money at this moment? Should Disney consider using ESPN as the currency for its Hulu deal? Should Disney even continue to own ESPN? Or ABC? And why, Nelson, do you have nothing to say about Iger’s “everything is on the table” philosophy that he famously articulated last summer in Sun Valley, only to basically abandon it later? In fact, nothing seems to be on the table anymore at Iger’s Disney. These are all gaping holes in the justifications for a proxy battle that, according to the Journal, will likely cost some $70 million.

It’s certainly true that even failed proxy fights can catalyze change on a board of directors. Take, as one example, Nelson’s failed proxy fight at DuPont, where he still got his way in the end. But I don’t see Nelson repeating what happened at DuPont, at Disney. Yes, he will lose this proxy fight if he lets it get to the vote. And no, he will not get his board seats. As for his vague and feckless operational suggestions? Iger’s gonna do what Iger’s gonna do, regardless of Nelson’s guidance. But don’t despair, Nelson, all is not lost. You are in the money on your Disney shares, and that’s really what this is all about anyway, right?