Why Shareholder Activism Won’t Save the Day for Disney
Walt Disney (NYSE:DIS) is celebrating its 100th anniversary this year, but while reaching a century in business is a remarkable milestone DIS stock has performed unremarkably in 2023 has been far from remarkable.
Even as major indices start bouncing back, shares in this media giant have kept tumbling lower, falling by around 5.2% year-to-date.
This comes despite the reappointment of longtime CEO Bob Iger last November.
As you may recall, Iger announced big turnaround plans last February, which resulted in billionaire investor Nelson Peltz rescinding his activist campaign at the company.
With Iger’s turnaround failing to turn things around thus far, the media exec is now not the only business heavyweight looking to pull off a second act at the “house of mouse.”
Peltz is back for another round of shareholder activism, yet if you think he’ll quickly save the day, think again. Here’s why.
DIS Stock is Once Again an Activist Target
For nearly twenty years, Nelson Peltz’s Trian Fund Management firm has found success using shareholder activism to increase the value of its positions in large consumer products companies. Prior to founding Trian, Peltz built a fortune as CEO of Triarc, a holding company that made a killing turning around the Snapple beverage brand in the late 1990s.
With this strong track record, it should be a positive sign that Peltzis back in action. He increased his firm’s position in DIS stock and is for several seats on the media giant’s board.
It remains to be seen whether Peltz’s latest cage-rattling will lead to a clash or a collaboration between the billionaire investor and well-respected CEO Iger.
Yet irrespective of whether there’s a proxy fight next spring, or if the board concedes to Peltz’s demand for seats, the talents of Iger and/or Peltz may not be enough to get Disney out of its current slump.
Fixing Disney is Easier Said Than Done
Bob Chapek, who ran Disney from 2020 to 2022, received a lot of flak from DIS stock investors, for the operational decisions. Yet, to cut Chapek some slack, Disney’s key issues are similar to those being experienced by other media conglomerates right now.
Paramount Global (NASDAQ:PARA), another legacy media company, is contending with weak results from its traditional film and television segments.
Meanwhile, Paramount’s streaming business not only cannot make up the difference, but it produces heavy losses. Disney finds itself in a similar boat. While headwinds like a weak advertising market could ease, long-term trends like cord-cutting are speeding up.
So far, with Iger back at the helm, Disney has implemented big layoffs. The company is also considering the sale of traditional media assets and hiking streaming prices.
However, results for the preceding fiscal quarter came in mixed despite the layoffs.
Although increasing streaming prices may bring the company’s new media segment closer to profitability, the price hikes may backfire, given the highly-competitive nature of the streaming business.
In short, even with a hard-charging CEO like Iger back in charge, getting Disney’s house back in order is easier-said-than-done.
The Takeaway
It’s hard to see exactly what Peltz will bring to the table, if Trian manages to snag seats on Disney’s board. Iger is already making the sorts of changes an activist investor would pursue.
A turnaround for the company hinges largely on things out of Iger and Peltz’s control. Linear media advertising needs to normalize. Box office receipts need to finally climb back to pre-Covid levels.
Alongside this, factors within the control of Disney’s management/board, such as the streaming price hikes/content cost reductions, will likely take time to have a positive impact on the company’s results.
A turnaround for the company is still a work-in-progress. Peltz’s activism is unlikely to speed things up. There’s no need to rush into a DIS stock position. Likely to continue underperforming in the near-term, sit on the sidelines for now.
DIS stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
