Activist investor presses for renovations at Disney's kingdom

An activist investor thinks it can help bring the magic back to Disney.

Fueling a proxy battle underway at The Walt Disney Company, Trian Fund Management is seeking to bring big strategy changes at Disney due to the company's "chronic underperformance."

To that end, Trian has nominated two board candidates – Trian CEO Nelson Peltz and former Disney CFO James "Jay" Rasulo – for Disney's 2024 annual shareholders meeting.

Disney last month appointed Morgan Stanley CEO James Gorman and former Sky chief Jeremy Darroch to its board, but that move apparently was not good enough for Trian.

Trian, which holds about $3 billion in Disney common stock and represents Disney's largest active shareholder, had some harsh words to share in a nomination letter issued Thursday (December 14), holding it believes a lack of focus and accountability has "resulted in chronic underperformance."

Trian cited poor earnings in the past fiscal year despite billions of invested capital and argued that margins at Disney's money-losing direct-to-home business and its consolidated media operators "significantly lags peers despite Disney having scale and superior IP [intellectual property]."

Among recent moves to get its DTC business on a path toward profitability while keeping churn in check, Disney has begun to beta test a new unified app that ties together Disney+ and Hulu's subscription VoD streaming service. Disney's DTC unit posted a loss of -$420 million in fiscal Q4 of 2023, narrowed from a year-ago loss of -$1.40 billion. Disney DTC revenues hit $5.03 billion, up 12% from the year-ago quarter.

Related:Disney tests app that ties together Disney+ and Hulu

Bob Iger returned as Disney's CEO late last year, a move that pushed out former CEO Bob Chapek. Iger's return then led to a restructuring and a greater focus on profitability within Disney's streaming business. Disney is also working on a plan to sell the flagship ESPN service on a standalone basis rather than limiting access to it in pay-TV packages. Iger has said he expects to step down when his current contract ends in 2026. Disney is also in the process of acquiring the remaining one-third of Hulu it doesn't already own from Comcast/NBCU.

Trian isn't convinced that Disney is on track for a turnaround, holding that the board is "too closely connected to a long-tenured CEO and too disconnected from shareholders' interests."

"Disney is one of the most iconic companies in the world with unrivaled scale, unparalleled customer loyalty, irreplaceable intellectual property ("IP"), and an enviable commercial flywheel. However, Disney has woefully underperformed its peers and its potential," Trian argued. "For shareholders, this subpar performance has destroyed value."

Related:Disney hikes some streaming prices, eyes crackdown on password-sharing

"The Disney I know and love has lost its way," Rasulo said.

Disney to review proposal, defends board

Disney said its governance and nominating committee will review proposed Trian nominees and provide a recommendation. But Disney also believes its board is highly qualified and focused on Disney's performance.

"Disney has an experienced, diverse, and highly qualified Board that is focused on the long-term performance of the Company, strategic growth initiatives including the ongoing transformation of its businesses, the succession planning process, and increasing shareholder value," the company said in a statement.