Disney Under Seige | Peltz Strikes Back | 2

0:08It's July 2023 and the most powerful executives in the world of media, finance and tech are in Idaho for the annual Sun Valley Conference, an invite only gathering where billionaires ming the world of media. talk trends, and initiate mega deals. And among those attending is Disney CEO Bob Iger. The 72-year-old follows his assistant through the resort hotel. He's wearing a designer pullover while holding a plastic bottle of water. He waves, nods, and smiles at the familiar faces he passes. The assistant quickly turns to brief him while they walk. Okay, we've got CNBC next. David Faber's interviewing.

0:47likely questions will be latest results, stock price, linear television. Iger nods. It's been eight months since he returned to Disney and the honeymoon's over. He might have warded off Nelson Pelt's attempt to stir a shareholder revolt, but the turnaround he promised is yet to happen. Disney's stock price has fallen 16 % in a year, and investors are questioning if Iger's up to the job. So he's planning to use an interview with CNBC's show Squawk Box. to reassure Wall Street that he's not some old media dinosaur pining for the glory days of broadcast and cable TV. The assistant leads him out of the building.

1:28On the courtyard, he sees CNBC's setup. Three cameras and two camping chairs arranged so viewers will see the mountains of Idaho in the background. Iger greets Faber, raises his arm so a sound engineer can wire him up with a microphone, and settles in for an interview. Cameras roll. Faber checks his notes and looks at Iger. Let me ask you about it. We're talking, I guess, ABC, the network, the stations, but then the cable networks as well. Yes, correct. FX, Nat Geo. Is it possible you would look to sell them? We're going to be expansive. I think if you can interpret what that word means, we're just getting at that work, but we have to be open-minded and objective about the future of those businesses.

2:10Yes. Meaning that they're not core to Disney? That they may not be core to Disney. Yeah. Now, there's clearly creativity and content that they create that is core to Disney, but the distribution model, the business model that forms the underpinning of that business and that has delivered great profits over the years is definitely broken. And we have to call it like it is, and that's part of the transformative work we're doing. Right. Well, we've been having this conversation for a very long time now. Well, I think what I'm saying is it's time. In terms of the erosion of the linear business, and now it's kind of closer to obsolescence?

2:41Well, as I said, when I came back, one of the things I discovered was that the disruptive forces that have been preying on that business for a while are greater than I thought. And so it's eye-opening. There's a reality to it that we have to come to grips with, and we have to come to grips with that now. Iger wraps the interview believing he got his message out. He's not got his head in the sand. The business model of linear TV is being destroyed by streaming platforms. But he's going to fix it. It's not just investors who heard the message, though. People working in Disney's TV operations did, too.

3:19And they now fear they're going to be sold or laid off. And the message didn't reassure Wall Street, either. Over the next few days, Disney's stock keeps falling. Before the interview, it traded at$90. A few days later, it's down to$86 a share. And that's enough to cause Nelson Peltz's attention to snap back to Disney. Peltz only abandoned his plan to stage a shareholder uprising five months ago. But with no recovery in sight, he's ready to strike again. And this time, he's going to see out the fight to the very end.

4:04So, you just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. See, when it comes to hiring, Indeed is all you need. Stop struggling to get your job posts seen on other job sites. Indeed's Sponsored Jobs help you stand out and hire fast. With Sponsored Jobs, your post jumps to the top of the page for your relevant candidates so you can reach the people you want faster. And that makes a huge difference. According to Indeed data, Sponsored Jobs posted directly on Indeed have 45 % more applications than non-sponsored jobs. Plus, with Indeed Sponsored Jobs, there aren't any monthly subscriptions, no long-term contracts.

4:53You only pay for results. How fast is Indeed? Well, in the minute I've been talking with you, 23 hires were made on Indeed, according to Indeed data worldwide. Look, there's no need to wait any longer. You can speed up your hiring right now with Indeed. And listeners of Business Wars will get a$75 sponsored job credit to get your jobs more visibility. That's at Indeed.com slash BW. Just go to Indeed.com slash BW right now and support our show by saying you heard about Indeed right here on Business Wars. That's Indeed.com slash BW. Terms and conditions apply. Hiring? Indeed is all you need. This message is brought to you by Apple Card.

5:41So you left your wallet in the car. Or was it at home? No need to panic. With your iPhone, you can tap to pay using Apple Card with Apple Pay and earn unlimited daily cash back when you do. Apple Card is ready when you need it. Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA, Salt Lake City Branch. Terms and more at AppleCard.com.

6:09From Wondery, I'm David Brown, and this is Business Wars.

6:35In the last episode, a sickly Disney brought back former CEO Bob Iger, Activist investor Nelson Peltz threatened a proxy fight pushing Disney into billions of dollars of savings, and Iger fired Peltz's close ally, Ike Perlmutter, the billionaire who ran Marvel. But Peltz isn't gone. His investment fund Tryon Partners is still a major stockholder. And with Iger struggling to fix Disney's problems, he's poised to attack again. This is Episode 2. Peltz Strikes Back

7:16November 19, 2023. The Walt Disney Company's office is in New York City. In an executive meeting room, Tryon Partners co-founder Nelson Peltz is face-to-face with Disney CEO Bob Iger. It's been four months since the Sun Valley Conference in Idaho, and Disney's still struggling. So Peltz is back, trying to get put on the board of directors. Bob, I want us to work together to refresh the board. We bring expertise that Disney can benefit from. You know this. I'm not sure I do. Okay, well let me lay my cards on the table here. Sure. Tryon is now the beneficial owner of approximately 33 million shares in Disney.

7:59That's more than$3 billion worth. Iger looks a little disturbed by this news. Back at the start of July, Tryon had just around 6.4 million shares. Now, I should point out that 25 million of that stock is Ike Perlmutter's. He's entrusted us with managing his stock in the hope that we can revive it. Iger tenses at the mention of Perlmutter, the former Marvel owner who he fired earlier in the year. Are you planning to nominate Ike for the board? Oh, no, no. Ike doesn't want that. But I'm glad you mentioned board composition. Tryon needs representation on that board. As you'd expect, I am primary nominee from our side.

8:40We've been through this, Nelson. In February, you heard my plan for transformation. You praised it and abandoned your proxy contest in response. I don't see what's changed. Pelt sits forward. There. That in itself is the problem. You don't see it. I do. The problem is nothing's changed. Nothing. When I called off the proxy contest, it was because we had confidence in the company's commitment to a substantive long-term turnaround. That commitment remains. Maybe. But our confidence in that commitment doesn't. The progress toward a successor CEO is glacial, streaming still unprofitable in the stock price.

9:21It's bumping around at its lowest level for the past nine years. All that underscores why Tryon needs representation on the board. Enhanced accountability in the boardroom is what's needed. And what would you bring to the board? The shareholders' perspective, that's what. Disney's the largest media business by revenue, but its margins lag behind its closest peers. We need to be on the board to address that. I request that you add me to the board plus two independent directors that we both agree on. Well, what if the board brought in other independent directors? Instead of? Instead of you. I didn't buy into Disney just to watch from the outside.

10:02I can do that for free. Iger crosses his arms. It's clear that if the board rejects pelts, Disney's facing another fight. Nelson, a proxy war will be a major distraction from transforming the company. That's what they all say. Well, I've heard you, and I will take your proposal to the board to consider at its next meeting. And what will you recommend they do? Will you recommend they bring me in? Iger pauses for a moment, then replies, I'm not sure I can. We'll tell you what the board says. Peltz nods, but he can already sense that Disney is dead set against letting him in, and a proxy war is the only way forward.

10:53After the meeting with Iger, Tryon sends a letter to Disney's board. The letter reiterates its request for putting Pelts onto the board along with two independent directors agreed by Tryon and Disney. It also lists the hedge fund's main beefs with Disney's performance. The share price decline, shrinking earnings per share, the lack of a clear CEO succession plan, the ongoing streaming losses, and box office disappointments like the recent superhero movie, The Marvels. But Disney's board isn't swayed. The following week, Iger informs Peltz that the board saw no reason to make him a director, but offered to let him make a presentation to the board on his ideas for change.

11:37Peltz declined, saying there's no point if the board isn't willing to consider appointing him to the board. So on November 30, 2023, Tryon notifies Disney that it intends to nominate Pelts for election to the board of directors. It's the starting gun on a five-month election campaign that will culminate with a shareholder's vote in April. And if Pelts wins, it'll be a sure sign that investors have lost confidence in Eiger and the current Disney board. But Disney is already raising its defenses. In tandem with its decision to rebuff Peltz's advances, the board has approved new bylaws, making it harder for outside parties like Tryon to nominate candidates for the board.

12:21The board's also approved a cash dividend for stockholders. It's a payout that should help make stockholders feel warmer to the company's leadership. The Disney board also announces it has already won the support of Value Act Capital, a San Francisco investment fund that has a sizable stake in Disney. But Peltz has friends, too. The Ohio hedge fund Ancora Holdings throws its weight behind the 81-year-old activist investor. Then, Tryon reveals its second nominee for the Disney board, Jay Rasulo, Disney's former chief financial officer. Rosullo resigned from Disney in 2015 after missing out on a promotion to chief operating officer.

13:04And his inside knowledge of Disney helps make the Peltz ticket more credible. But Peltz must do more than convince institutional investors to back Tryon's alternative nominees. He must also win the votes of retail investors, the non-professional investors who own more than a third of Disney's stock.

13:29January 11th, 2024. Orlando, Florida. At Disney's Hollywood Studios at the Walt Disney World Resort, Nelson Peltz is blending in. He's wearing a hat with Mickey Mouse ears and carrying two balloons. A try-in executive raises his smartphone to capture the moment. Say cheese. Cheese. Peltz and his team are here for an offsite, and they want to experience the park just as most people do and get an on-the-ground sense of how Disney's prized parks are performing. That, and some handy publicity photos. Helz looks back at the Walt Disney Presents Museum they've just visited, and points a finger. Now that!

14:11That was terrific. Just terrific. It really brings it home. One of his team looks over. It brings home what? How much top-level IP this company sat on. Star Wars, Marvel, Indiana Jones, Toy Story, Aliens. The list goes on and on. It's mind-blowing. How can they have the greatest collection of IP in the world and still be struggling to match Netflix on profitability? We should make a point of that. Netflix's margins are 15 to 20 percent. We should press Disney to match that. At least. Let's check out the Magic Kingdom next. I'll look at how to get there. As the executive checks the park map, Peltz and the others watch as smiling employees entertain and serve the park's delighted guests.

14:56One executive leans towards Peltz. I know we said there needs to be more capital spending to freshen up the part, but you gotta credit the operation. Employees here really do smile all the time. Ha! It's probably because none of them own any Disney stock. But while the group laughs, one try-in executive speaks up. Actually, a lot may own shares. There's an employee stock purchase plan. Well, then I am shocked that they're still smiling. The executive checking the map looks up. Okay, it looks like we can either take a Disney bus or a mini van service to Magic Kingdom. Ready to go? Lead the way.

15:40With that, Peltz and his team set off towards the Magic Kingdom and its replica of Disney's world-famous Cinderella Castle, the place they're metaphorically laying siege to. But they all know that in corporate America, the odds are stacked against those trying to stoke stockholder rebellions. Big institutional investors default to supporting the directors nominated by the existing leadership. Incumbent boards of directors are able to introduce measures that tip the scales in their favor. But Pelz has faced these hurdles and cleared them before. He also knows that Disney isn't like most public companies.

16:18At Disney, one share equals one vote, and many of the stockholders are retail investors. They're the employees in the park, the families here on vacation, and ordinary folks who dabble in the stock markets, usually by investing in consumer brands they're familiar with. And if Tryon can convince these legions of small fry investors to support their campaign, Helz's revolt could deliver a revolution in the Magic Kingdom.

16:51When planning for your future, you want someone with a history of keeping their word year after year. For nearly 160 years, Pacific Life has been a trusted name in the industry. But that isn't just a number. It's experience that matters. It's 160 years of promises held Helping generations retire with confidence Protect their loved ones And plan for whatever comes next Whether you're looking for life insurance Employee benefits Or retirement income solutions When your future is on the line You want history on your side And believe me Pacific Life has been there Always there through changing times Always focused on your needs Ready to secure your tomorrow?

17:32Ask a financial professional How Pacific Life can help you feel prepared for what's next. Pacific Life Insurance Company, Omaha, Nebraska, and in New York, Pacific Life and Annuity, Phoenix, Arizona. Because with Pacific Life, you're not just planning for the future, you're partnering with trusted experience. You hear it all the time on Business Wars, the battles between brands, the bold moves, the breakthroughs. But behind every winning business, there's something less talked about. Great IT. That's where Manage Engine comes in. ManageEngine offers a comprehensive suite of AI-powered IT management solutions that give you complete control over your IT operations.

18:14Your employees can collaborate securely. Your IT admins can easily monitor and manage devices. And you get full visibility of your data hygiene. ManageEngine also integrates well with most popular IT software programs out there. So, if you're a growing business or an organization looking for enterprise-grade IT management and cybersecurity solutions, visit manageengine.com to take control of your IT. That's www.manageengine.com.

19:02It's January 18th, 2024, and the campaign to win the votes of Disney stockholders is gathering speed, and it's getting personal. Disney's come out swinging. It's painting Nelson Peltz's challenge to its board as motivated by revenge, thanks to the involvement of former Disney executives Ike Perlmutter and Jay Rasulo. But the company's main line of attack is to highlight Peltz's own lack of experience in media and technology. But this morning, Heltz is about to respond in kind, and he's using an appearance on CNBC's Squawk Box to question Disney CEO Bob Iger's supersized compensation package. Last year, he got paid$31.5 million, okay?

19:47Earnings were down. They missed everything. The stock was down. Everything went bad. And he got$31.5 million. You know, I don't understand what this board is doing. I don't know what they're there for other than as friends of Bob. You know, that is what this is all about. They are friends with Bob. It is a hand-picked group of directors who are not doing their jobs. But Peltz is no longer the only activist investor stirring up trouble at Disney. In the wake of his decision to mount a proxy war, another New York investment fund, Blackwell's Capital, has entered the fray. It's hoping to get traction by offering a middle way between the current board and Peltz's vision.

20:31It wants to freshen up the board, but stick with the company's existing strategy. So it's now a three-way fight, and with just 76 days into the annual shareholder meeting, there's no time to waste. They all need to convince shareholders to back their candidates. Disney wastes no time in deploying its army of famous characters to campaign for the existing board. And leading the attack is Donald Duck's Viennese uncle, Professor Ludwig von Drake. Friends, relatives, and esteemed chairman, you're probably wondering what we're all doing here today. Now, let's begin. Whoa, Professor Ludwig von Drake, slow down there.

21:12On April 3rd, the Walt Disney Company will be hosting its annual meeting of shareholders, and we need you to all vote for your board. Remember, it's important you vote only for Disney's 12 nominees using the white proxy card. Do not vote for the Tryon Group or Blackwell's nominees. We thank you for supporting Disney. If you have any questions... In the weeks that follow, Disney deploys more of its high-profile IP in its literature about the fight, including Marvel superhero Iron Man and Moana, the Polynesian Disney princess. It also gets Hollywood's elite to pledge support, including Star Wars creator George Lucas and Walt Disney's heirs.

21:52But Peltz isn't completely without high-profile backup.

22:01February 2024, Los Angeles. Outside the Regency Bruin Theater, press photographers jostle for position along the carpet that leads inside the venue. Tonight, the theater's hosting the premiere of an indie movie called Lola, and Nelson Peltz is there to see it. But not as a billionaire financier, but as a father. And that's because his daughter, Nicola Peltz-Beckham, is the film's star, scriptwriter, and director. But as Peltz walks towards the entrance, it's not him that's exciting the photographers, but the taller man walking by his side, billionaire Elon Musk. Elon! Nelson! Hey, together! Yeah, yeah, get together.

22:43The South African tycoon wraps an arm around Peltz and turns to the cameras. The two billionaires grin as the cameras flash. They're united against a common foe, Disney. While Peltz has been trying to force his way onto Disney's boardroom, Musk has been lobbing insults at the company and its CEO for months. The bad blood between Musk and Bob Iger began a few months earlier when Musk endorsed an anti-Semitic conspiracy theory on his social media platform, X. In response, dozens of major companies stopped buying advertising on X, and Disney was one of them. With X's revenues collapsing, Musk apologized and called his post the dumbest thing he's ever shared online.

23:29But Musk also began publicly criticizing the advertisers who abandoned X, and Disney became his favorite punching bag. He's called for Iger to be fired, backed Peltz's campaign to shake up Disney's board and described the company's track record in delivering for shareholders as brutal. But while Peltz and Disney's enlisting of big-name backers in this fight gets attention, the real battle is being fought below the media radar, in the form of a barrage of direct mail, emails and phone calls to shareholders.

24:09It's March 2024, and Disney's annual shareholders meeting is less than two weeks away. In Princeton, New Jersey, corporate governance consultant Douglas Chia checks the text that just pinged on his phone. He raises his eyebrows. It's a text from Tryon's proxy solicitors, who are leading the effort to contact Disney shareholders and convince them to vote for Peltz and Jay Rasulo. But he has no idea how Tryon got his cell phone number. or why the company's so keen to talk to him. After all, he only owns around 200 Disney shares. Out of curiosity, he decides to call the number that texted him. He reaches a call center operator who starts in on her pitch, explaining that voting for Tryon's nominees could make a big difference to the value of his stock and about restoring the magic at Disney.

25:02Chia decides not to mention that he already sent in his ballot several weeks ago. Then, Chia presses her for specifics. She claims Peltz has experience turning around Heinz and P &G when he served on their boards, and that because he bought his Disney shares, he has real skin in the game. But when Chia again presses her for specifics of how he'll turn around parks and cruises and make so-called magic, the call center operator fumbles, saying Peltz has got to get onto the board first. But Disney and Tryon aren't just cold-calling stockholders in a final push to win the support of the last undecided.

25:42Disney's creating attack videos, too, warning shareholders of the dangers of voting Peltz. What's the harm of letting activist investor Nelson Peltz or Jay Rizzullo have a seat on Disney's board? The answer is simple. If they succeed, Disney could suffer the same fate as other great companies that Peltz has previously infiltrated, traded, such as GE and DuPont. Nelson Peltz has a long history of attacking companies to the ultimate detriment of shareholder value. His quest also seems more about vanity than a belief in Disney. The choice is clear. Vote Disney. Disney's also taking its Stop Peltz message on the road.

26:22Bob Iger and other senior Disney executives spend the last few days of the campaign touring the nation to meet with major investors to convince them that the company's strategy is right. Iger also uses the opportunity to highlight the signs of recovery, including how Disney's stock price has risen 35 % since the proxy contest started, a development that's undermining Peltz's main line of attack. As the contest enters its final days, the Disney camp is growing confident. By their calculations, Tryon's second nominee, Jay Rasulo, is not going to amass enough support to get a seat on the board. Blackwell's alternative challenge is also going nowhere.