Forget Thanos versus the Avengers. Disney’s Marvel movie saga is flimsy fiction compared to the company’s real-world battle with Trian.
There are complex financial arguments for shareholders to absorb as the New York activist takes on the West Coast media giant. But judgment will pivot on whose credibility is higher: Trian’s Nelson Peltz or Disney’s Bob Iger.
Peltz has launched a proxy fight for a seat on the Disney board after the company declined to nominate him as a director. His funds have amassed a $900mn stake.
The timing is astute. Disney is in turmoil. Shares in the company have fallen by more than half from 2021 peaks. Iger returned for a second stint as chief executive in November following a woeful quarterly earnings report.
Peltz is right that some of Disney’s problems are self-inflicted. Iger botched his own succession. Breakneck spending on content looks increasingly hard to recoup.
Investors no longer want growth at any cost. They want to see profits. Disney’s direct-to-consumer business, led by Disney Plus, made an operating loss of $4bn in the last fiscal year. Rival Netflix, which is expected to report $4.7bn in net income in 2022, has an operating margin of more than 21 per cent.
Disney has raised prices on all streaming services and introduced an ad-supported tier to Disney Plus in December.
Iger is expected to cut costs. The question is whether he would do so as sharply as Peltz. This would likely involve stripping out swaths of management — the “matrix” Peltz loathes. It might involve Disney conceding it must play second fiddle to Netflix in streaming.
That would free up cash flow to pay down debt, paving the way for dividends to restart.
Some of the criticisms in a Trian slide deck look pretty selective. Disney probably overpaid for Fox businesses on current metrics. But Avatar 2 has been a box office success and reboots of Deadpool, X-Men and Fantastic Four are in the works. Other acquisitions have been positive.
Peltz has made a lot of money for supporters, notably at Procter & Gamble and Heinz. But Iger is hugely respected beyond the US entertainment industry.
By escalating his move on Disney into a public battle, Peltz will test whether fellow investors believe he or Iger should steer the business. The next act will be a war of words and figures. Either way, at least one big ego is going to take a bruising.
The Lex team is interested in hearing more from readers. Please tell us what you think of Trian vs Disney in the comments section below.