Company: Walt Disney (DIS)
Stock Market Value: $181.3 billion ($99.43 per share)
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Activist: Trian Fund Management
Percentage Ownership: n/a
Average Cost: n/a
Activist Commentary: Trian runs a concentrated portfolio of 8 to 10 mid- to mega-cap, publicly traded companies where it actively engages with management with the goal of enhancing long-term shareholder value. Trian, managed by Nelson Peltz, takes very few positions, but is very active in the fund’s positions. Peltz calls his formula “operational activism.” He defines it as working the managements of high-potential but underachieving companies to raise earnings by paring overhead, shedding ancillary businesses, and most of all, burnishing famous brands.
Trian calls itself a “constructivist,” implying a more friendly activist investor. First, let me say I dislike that word for two reasons. For one, it suggests that activists that are being confrontational cannot also be constructive. Second, I don’t think any good activist is a “constructivist” or a “confrontational” activist. How amicable or confrontational an activist is in any given situation depends on many things, most of all the response of the company. Trian, like most activist investors, intends to be friendly and always starts off that way, and then it is up to the company to respond. It is often the company that decides how confrontational a situation might get. GE invited Trian on to the board; Procter & Gamble did not. Trian was not a “constructivist” investor at GE and a “confrontational” investor at Procter & Gamble. The firm is an activist investor, plain and simple.
On Nov. 21, The Wall Street Journal reported that Trian Fund Management took an approximately $800 million stake in Disney. It was also reported that Trian was interested in growing this stake and would likely be acquiring more stock, which is consistent with the size of positions Trian historically takes in mega-cap companies. The investor is reportedly seeking a board seat, advocating for the company to make operational improvements and reduce costs, and it has expressed its opposition to Robert Iger’s reappointment as CEO.
Behind the Scenes
In this situation, Trian seems to be looking for a board seat and is urging Disney to make operational improvements and reduce costs. This is very similar to what Dan Loeb and Third Point were advocating for at Disney earlier this year. On Sept. 30, Disney reached a deal with Third Point, including adding former Meta executive Carolyn Everson to its board of directors. On Nov.11, Disney announced companywide cost-cutting measures and told division leaders that layoffs are likely. This will include a ban on all but essential work travel and a freeze on new hires for all but a few critical positions. So, a lot of what Trian is looking for – board change (particularly with former CEO Bob Chapek now off the board) and cost reduction – has either already happened or is in the process of happening.
Another thing about Trian is that it’s a very thoughtful investor, known for its detailed, comprehensive white papers. The firm did not go into this without a plan and that plan was far from spontaneous or reactive. It was a plan that Trian has likely developed over many months. And it was presumably thrown for a loop when Disney announced that it replaced Chapek with former CEO, Bob Iger. The fact that Trian had not yet built its full position when its holding was reported is more evidence that the firm felt it had to go public about its investment earlier than it wanted to in reaction to Disney’s announcement. Iger was an extremely respected and value-adding CEO at Disney for many years and the stock has reacted favorably on this news. So, it is interesting that Trian is reportedly opposing Iger’s appointment. Nor is the firm throwing its support behind outgoing CEO Bob Chapek. Knowing Trian and knowing activists as we do, this could mean only one thing: Trian’s plan includes its own idea for a new CEO, something that would have been a lot easier to implement last week before Chapek was replaced by Iger.
This is going to be an uphill battle for Trian. Disney recently reached a deal with activist investor Third Point and is not likely to settle with another activist for a board seat, particularly in light of all of the changes it has already made. Moreover, Trian would likely want Nelson Peltz or Ed Garden to be the firm’s representative on the board and Nelson is already on three public company boards (Unilever, Wendy’s and Madison Square Garden) and Ed is on two (GE and Janus Henderson Group). Disney is definitely in need of serious change, but in the past three months the company has announced a cost-cutting plan, refreshed the board and changed its CEO. It is not unreasonable to see if these initiatives work before considering additional changes. If Disney does not offer a seat to Trian, the firm would have to resort to a proxy fight to gain a seat, which it is unlikely to win on a platform of more change and opposing Bob Iger as CEO. We will definitely know more soon, as Trian has until Dec. 9 to nominate directors for the 2023 annual meeting of shareholders.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Squire is also the creator of the AESG(TM) investment category, an activist investment style focused on improving ESG practices of portfolio companies.