Disney Under Siege | Restore the Magic | 1

0:08New York City, the summer of 2015. Ike Perlmutter raises his eyes and looks across the dinner table at the man sitting opposite him, Disney CEO Bob Iger. Iger's flown in from California to dine with him, and his presence here has set Perlmutter's spidey sense tingling. Perlmutter is the 72-year-old head of Marvel Entertainment. Six years ago, Iger convinced him to sell Marvel to Disney. Now, Marvel superheroes rule Hollywood. But friction's growing between the two men. Perlmutter's eyes meet with Iger's. So, what is it you want to discuss? We need to talk about Kevin. Kevin is Kevin Feige, the movie executive who turned Marvel into box office gold.

0:53Hollywood loves him, but Perlmutter thinks he's a reckless spender with a liberal agenda. And what about Kevin do you want to discuss? You keep putting roadblocks in his way. He's one of the most talented executives in filmmaking history, and you treat him like an adversary. You won't give him the budgets he needs. Needs or wants? The movie budgets are totally excessive. He has to go. So you keep saying, but you never have any idea who you would replace him with. I'm still looking for the right person, but that's no reason to overspend. Perlmutter might be a billionaire, but he's thrifty. He still eats three dollar lunches at Costco and fishes paperclips out of the trash to save money.

1:37We've been over this, Ike. Hollywood is not a normal business. It requires big risks. Yes, it's easy to get swept up in the glamour and lose perspective, but it's just as easy to grow jaded and lose all perspective too. You're making Kevin sick with stress. You're driving him out of the company. And I can't have that. He's spoken to you. What's going on between you and Kevin can't continue. Things have to change. Change? How? Kevin and Marvel Studios will now answer to Walt Disney Studios, just as Lucasfilm and Pixar do. You'll still run the rest of Marvel Entertainment. You're making a mistake.

2:19You can't trust Kevin. He's loyal only to himself. Do you have an alternative solution? No. No, I don't. Then you've made my case for me. So, are we agreed? Do I have a choice? Not really. Then I agree. Perlmutter resumes eating his meal while seething inside. He's lost control of Marvel's biggest business, and the animosity between him and Iger will only grow from here. Until, one day, years from now, the differences between them will erupt into the most expensive war for corporate control in U.S. business history.

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5:16From Wondery, I'm David Brown and this is Business Wars.

5:42In this season, we track billionaire investor Nelson Peltz's attempt to strong-arm his way onto Disney's board. It was a$65 million argument, launched as an ailing Disney struggled to recover from the COVID pandemic and a run of movie misses. At stake was the future of the Walt Disney Company, the media colossus behind Marvel, ABC, ESPN, Pixar, and much more. Peltz's Siege of the Magic Kingdom would see mud slung, thousands laid off, careers crushed, and Hollywood stars sparring with Wall Street financiers. This is Episode 1, Restore the Magic.

6:29It's July 2022, seven years since former Disney CEO Robert Iger stripped Ike Perlmutter of control of Marvel's movie output. And at the Disney Hotel New York at Disneyland Paris, activist investor Nelson Peltz is eating lunch. Through the window, he sees tourists reconnecting with the theme park after two years of COVID lockdowns and social distancing. Peltz is an 80-year-old billionaire with white stubble and expensive round spectacles. He runs the hedge fund Try and Partners and has a rep as a corporate troublemaker. Peltz makes his loot from big companies with depressed stocks. When he finds one, he buys in big and uses his stake to demand changes that'll boost its stock price.

7:13And once he's achieved that, he cashes out, many millions richer. He's already done this to Heinz, Wendy's, General Electric, and Family Dollar. And today, he's sniffing out a fresh target. Peltz looks up from his meal and at his lunch companion, Bob Chapek, the bald-headed CEO of Disney. What's that? Chapek smiles. It's the Dream and Shine Brighter Parade. It celebrates 30 years in Paris. Good to know Disney's still got something worth celebrating. Chapek ignores the dig, but he knows what Peltz is getting at. Chapek replaced Iger as Disney's CEO in February 2020. A few weeks later, COVID hit.

7:58The pandemic shut Disney's theme parks, put movie production on ice, and canceled the sports game's ESPN airs. And the company's yet to rebound. Pixar and Marvel movies have gone from blockbusters to box office bombs. Disney Plus is losing billions trying to catch up with Netflix. And its TV networks are losing viewers to streaming platforms. Disney's also got itself tangled in America's culture wars. Four months ago, Florida banned schools from discussing sexual orientation or gender identity with children under 10 years old. But the company's decision to say nothing about the so-called Don't Say Gay Law caused uproar among Disney employees.

8:40So Chapek tried to calm the situation by criticizing the law. That infuriated the band's supporters. And now, Florida Governor Ron DeSantis is moving to strip the Disney World Resort in Orlando of its special tax status. All of which has caused Disney's stock to fall by a third since the start of the year. So now, after some back-channel chats with his next-door neighbor, Marvel Entertainment Chairman Ike Perlmutter, Peltz has flown to Paris to see if Chapek is someone he can work with. Bob, Ike and I feel for you. We do. You were dealt a bad hand. Well, COVID challenged every business, but we've turned the corner.

9:20Really? The evidence is right here in this park. In the crowds outside. I don't mean COVID. I mean what you inherited from Bob Iger, a flawed streaming strategy, the overpriced Fox acquisition, runaway movie budgets, all of which drags on the stock price. Our streaming strategy is essential. Broadcast and cable TV viewership is in decline. But I'm sure you have views on what we should be doing. You bet I do. I believe there's billions of cost savings to be made. The business is too centralized and there's not enough cost discipline. But my most pressing concern is that if these problems keep on going, the board might panic and bring Iger back in as CEO.

10:06It's a worry Chapek shares, too. Iger's shadow looms large over Disney. During his 15 years as CEO, Disney's market value grew more than fourfold. He was always going to be a hard act for Chapek to follow. And it doesn't help that Iger spent his retirement questioning his handling of Disney. Chapek leans forward. What are you suggesting, Nelson? That we work together. I want to make a major investment in Disney. And I'd like to help you get things back on track. Ah, you want a board seat? I don't intend to invest hundreds of millions of dollars in return for zero influence. Representation on the board is a must, but you know I have the experience.

10:52Not in media. Business is business. The need to deliver value for stockholders doesn't change just because you make movies. You think the board is open to me joining? Ike is ready to help you make the case. Not everyone likes Ike. They remember his antagonism toward Iger, and his attitude to Kevin Feige is a real problem. The board sees Kevin as crucial to Marvel's success. Also, your reputation for starting proxy fights will put them all on edge. I don't want to start a proxy fight. I always try to work collaboratively with the companies I invest in. It's only when companies refuse to accept the need for change, I'm forced to appeal directly to stockholders for a position on the board.

11:35Chapek pauses to think. Peltz seems like someone he could work with, and he could do with an ally in the boardroom. Also, it's better to get on Peltz's good side than to risk a distracting and high-profile proxy war. Okay, Nelson, this is interesting, but as you know, I don't decide who gets to join the board. I'm just the CEO, of course. But I will relay our conversation to the board and encourage them to explore it further with you. Well, thanks. That's all I'm asking for.

12:15Peltz spends the next few months trying to sell his vision of change to Disney's board members and senior executives. In parallel, Ike Perlmutter starts pushing internally for Peltz to be offered a seat on the board. But as summer turns to fall, it becomes clear to Peltz that Disney's board is in no rush to invite him in. They're also losing faith in Chapek's leadership.

12:46It's November 8th, 2022, and the Walt Disney Company is holding its fourth quarter earnings call. And in the Manhattan offices of Tryon Partners, Peltz is listening in with his analysts and traders. Through the speaker in the middle of the table, Chapek is delivering an upbeat report about Disney's performance. Fiscal 2022 was a strong year. We continued our journey of telling incredible Disney stories. Those efforts resulted in record annual results at our parks, experiences and products segment. The Tryon team exchanged looks of surprise. They have Disney's results in front of them. And to them, the numbers don't justify Chapek's cheery assessment.

13:27Disney's earnings per share are 25 cents below expectations. The fourth quarter losses from Disney's streaming platforms have more than doubled to$1.5 billion. dollars. Profits have flatlined. Peltz turns to one of his employees who's hunched over a laptop tracking the market reaction. Where's the stock heading? Chopping like a stone, down almost 10 % since this morning. Peltz nods. He's prepared for this moment. He's got a war chest of half a billion dollars he can use to purchase Disney stock. His team has already identified the ideal price to buy at. Tryon's computers are primed to scoop up shares in an instant.

14:09The employee looks up from his laptop. Stock just slipped beneath$90. What's the call? Peltz doesn't reply immediately. After all, this is a half a billion dollar decision. And the money isn't his. It's money other investors have entrusted to him and Tryon to manage. He refocuses on the earnings call where Chapek is still painting a rosy picture for Wall Street. We believe that we've got a formula that gives us great confidence that we're going to achieve. That's all Peltz needed to hear. Disney is in denial. Time to crank up the pressure. He looks at his team. We buy.

14:53A few hours later, Disney headquarters, Burbank, California. In his office, Chapek steadies himself and reaches for his desk phone. He spent the day trying to sell Disney's results as a good news story, but Wall Street isn't buying it. Disney's stock is down almost$10, wiping billions off its market value. And now, Nelson Peltz is on the phone. Chapek carefully picks up the receiver. Nelson, sorry for the wait. What can I do for you? I'll be quick. I wanted you to know that we've taken a position in Disney. How big a position? $300 million, and we expect to continue buying over the next 24 hours up to around$500 million.

15:39Chapek knows this is the first step towards a proxy fight. The term for when an outsider like Peltz attempts to convince stockholders to replace or curtail the power of a company's existing leadership. Chapek plays it cool. Well, your vote of confidence in the Walt Disney Company is welcome. Thank you. But now that we are a major stockholder, we do expect our voice to be heard. We want a seat, maybe two, on the board. Today's results only reaffirm the need for major restructuring. But we can, and we will, discuss that in more detail in the days to come. I'm sure. Bye now. Chapek hangs up and closes his eyes.

16:24He knows that after today's events, he's on borrowed time. Disney is in crisis and his position is in jeopardy. The board is probably already discussing whether to fire him. His senior executives will be wondering if they will get a shot at replacing him. Allying with Peltz might be his only way to survive now. A few days later, he flies to Palm Beach, Florida. There he meets with Peltz at his Oceanside mansion. Then, he heads next door to meet Peltz's neighbor and chief advocate within Disney, Marvel Entertainment's Ike Perlmutter. But when Disney's board members learn of the unapproved talks, they ban Chapek from further unchaperoned contact with Peltz.

17:12And that's because the board of directors has another solution in mind. The solution Peltz, Perlmutter, and Chapek dread most. Bringing back Bob Iger.

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19:48It's Friday, November 18, 2022, and in his white-walled mansion in Brentwood, Los Angeles, Bob Iger is on edge. It's almost a year since he retired from Disney's board of directors, but now he's got a call scheduled at 3 p.m. with Susan Arnold, the lead independent director on the board. The 71-year-old former Disney boss and Arnold fell out with each other two years ago, so the sudden request for a call has set his imagination whirring. Iger checks his watch. It's three. The phone rings. Iger resists the temptation to answer immediately. He lets it ring two more times, then answers. Susan! Iger listens as Arnold explains that the Disney board of directors has lost confidence in Chapek.

20:36Then she asks the question he hoped to hear. Will I come back? Yes. There's a moment of surprise silence on the other end of the line. Arnold didn't expect Iger to say yes quite so fast. Iger fills in the gap. I have three conditions, though. First, I want it to be announced Monday at the latest. It's too big a secret for me to keep. Arnold says the board can make that Monday announcement happen. My second condition is that my return has to be for a limited period. One year. Arnold pushes back. One year isn't enough time to prepare a successor CEO. Disney wants Iger back for at least two years.

21:18Iger thinks for a moment, then relents. Okay, two years then. My final condition is that I want to serve without pay. I don't want people thinking I'm doing this for the money. Arnold pauses again, surprised by the request. Then she says she'll need to discuss that with the board.

21:42That Sunday, Disney's board of directors meet online without informing Chapek. They agree to fire Chapek and reinstate Iger. They also reject Iger's request to work without pay. After the board meeting, Arnold calls Chapek and tells him he's fired, effective immediately. Four hours later, news breaks that Iger's back. But he's returning to a world of trouble. Disney's fighting fires on multiple fronts. And he also knows that Ike Perlmutter will now be doing all he can to help his friend Nelson Peltz break into the boardroom.

22:25It's January 10th, 2023, and on a Zoom call, last-ditch talks to avoid a proxy war are underway. It's been two months since Iger returned to Disney, but the change in leadership hasn't put Pelts off. In fact, he's digging in and increasing his stake in Disney, which now stands at$800 million. So now, Iger and Disney's top executives are trying to find a way to make nice with Peltz and the Tryon team. Iger tries to convince Peltz to give him more time to make changes. Nelson, we're open to working constructively with you, and we welcome any ideas that drive shareholder value. But we need time to deliver change.

23:08A proxy fight would be a huge distraction from that. Peltz adjusts his glasses and leans toward the camera, his face filling the screen. The way to avoid a proxy fight is to add me to the board. We can help. Your stock is at an eight-year low. When I look at Disney, I see a company in crisis. I feel that's an exaggeration, but maybe we can talk specifics. I'd love to. Let's talk about streaming. You're struggling to deliver profits despite having similar revenues to Netflix and the advantage of best-in-class franchises. Why? I'll tell you why. Because Netflix is more cost-effective in its productions.

23:48Disney lacks cost discipline. That's why your streaming economics are so bad. We're already taking action on costs. There's a hiring freeze in place and more to come. But we need time and the ability to focus on what's important. A proxy battle with you will be a distraction from what's important. Then avoid the battle by putting me on the board. Every company whose board I've served on, and I have served on many, has outperformed the S &P 500. Look, we can help. We've offered quarterly meetings with management and the board as well as an information sharing pack. We can keep talking, but we need you to sign a standstill agreement saying you won't mount a challenge.

24:34It's impossible to work together while you're threatening us. Now, will you sign that? No. No, she... Robert, this needs resolving. We have skin in this game, and the deadline for this year's board nominees is close. I will be on that ballot, one way or another.

25:02The Zoom call ends without an agreement and war between Tryon and Disney imminent. The next day, Business News Network CNBC breaks the news that Peltz will mount a campaign to get a seat on Disney's board of directors. Nelson Peltz is going to try to get on the board of directors at Disney because they said, we're not interested in you joining the board of directors of Disney, Mr. Peltz. He's a significant shareholder. Last count, maybe$800 million worth of stock. They've known he's been there for some time. In fact, Bob Chapek, the former CEO, is aware of Peltz's presence, as was the board. And then the board did get rid of Mr.

25:40Chapek, but that apparently wasn't enough to satisfy Mr. Peltz. The next morning, Peltz's campaign officially begins. He kicks off the campaign with an appearance on CNBC's morning market news show, Squawk on the Street. He uses his TV time to tear into Disney's financial results. Then he sets to work poking holes in Iger's reputation as a superstar CEO by highlighting one of the last big decisions he made during his first run as Disney's CEO, the buyout of 21st Century Fox in 2019. They lost about$50 billion on Fox. Fox hurt this company. Fox took the dividend away. Fox created what was once a pristine balance sheet into a mess.

26:29That same day, Peltz's Tryon Partners hedge fund launches a campaign website called Restore the Magic. The website sets out Tryon's criticisms of Disney's performance and outlines a plan to turn the business around through greater financial discipline. But Peltz's attack won't go unanswered. Iger and the Disney board are determined to keep him out. And they're cooking up an alternative turnaround plan, one designed to stop Tryon's campaign in its tracks.