The Walt Disney Co. (NYSE: DIS) shares have been surging to 52-week highs, but not necessarily due to material improvements in operations. There is a proxy war being undertaken between billionaire activist investor Nelson Peltz of the Trian Fund and the Walt Disney CEO Bob Iger. The battle boils down to control of the Board of Directors as shareholders vote at the investor meeting on April 3, 2024.
How Did The Proxy War Emerge?
Nelson Peltz’s Trian Group owns over $3.5 billion of Disney stock. Peltz has spoken out against the Board of Directors whom he says is responsible for the woeful underperformance of the stock and operations. Peltz is fighting for two board seats. Peltz argues the board is not truly engaged and needs to take accountability. Trian started #RestoreTheMagic, stating, "…the root cause of underperformance is the Board's lack of focus, alignment and accountability."
The White Paper Against Disney
Peltz has noted the change in culture at the company and his distaste for the direction of the company, which has been anchored in "woke" culture that has replaced many of its iconic characters, leading to box office disasters like The Marvels and Haunted Mansion. In a nutshell, Peltz feels Disney has lost its way and traditional values, pandering to a message of diversity and inclusion.
On March 4, 2024, Trian released a 133-page white paper, “White Paper: Trian’s Case for Change at Disney”, detailing Peltz's plan to turn around the company, which includes performance-based compensation with shareholder value, reaching 15% to 20% margin and replacing its CEO.
Trian Group Nominates 2 Board Members
In a letter to shareholders, Trian Group put out a statement, “To help ensure a better future for this great company, we believe Disney needs new independent directors who have a shareholder mindset, deep and relevant experience and a sense of urgency. We have nominated two such candidates, Nelson Peltz and Jay Rasulo, who have invested their own money in Disney stock and are dedicated to helping Disney."
A History of Board Participation
Nelson Peltz has had a history of taking control of Board Seats influencing companies mostly for the better for shareholders and customers. He is the Chairman of the Board for The Wendy’s Co. (NASDAQ: WEN). He succeeded in taking a seat at The Proctor & Gamble Co. (NYSE: PG) and Kraft Heinz (NASDAQ: HNZ) and turning the stock around. Peltz has board positions in up to 20 other companies, schools, civic organizations and museums. Peltz has commented that the battle is not about Bob Iger but board oversight. Check out the sector heatmap on MarketBeat.
A Turnaround in the Works?
The day after Trian's White Paper was released, Disney stated it would exceed guidance expectations at a conference on March 5, 2024. Disney claimed it will exceed 2024 cash flow guidance. ESPN grew in terms of ROI and rating in 2022, 2023 and Q1 2024. It expects its direct-to-consumer (DTC) segment, which includes Disney+, to be profitable by Q4 2024. This left investors questioning the timing and whether Disney was bluffing in reaction to Trian's White Paper.
The Alliances Chime In
A number of large shareholders have chimed in on the proxy war. Vocal shareholders backing Bob Iger include Jamie Dimon, George Lucas, Blackwells Capital Abigail Disney, Roy Disney and 6 other family members. ISS Shareholders, Egan-Jones and the CalPERS pension fund are backing Peltz. Disney shares climbed 5% in the week preceding the shareholder meeting. The question is whether it's driven higher because of Peltz's proxy war or defense against it.
After the shareholder vote on April 3, 2024, Disney shares will reveal which was responsible.
Analysts Chime In
Several analysts upgraded shares of Disney ahead of the investor meeting. UBS reiterated its Buy rating and raised its price target on DIS to $140 on March 27, 2024. Analyst John Hodulik noted they remain bullish on shares driven by multiple potential upsides that can drive earnings higher yield at 25% for a 3-year CAGR. This will be driven by its Parks business, with help from Content and DTC segments. He commented, “We expect FCF of $9B in F24E (vs. guidance for ~$8B), rising to $14B in F26E, supporting ramping buybacks, dividend growth and incremental investments. Parks continue to outperform expectations while new spending will boost capacity."
Disney analyst ratings and price targets are at MarketBeat. Disney peers and competitor stocks can be found with the MarketBeat stock screener.
Daily Bull Flag Breakout
The daily candlestick chart for DIS illustrates an ascending triangle breakout pattern to 52-week highs. The bullish move is driven by analyst upgrades and the proxy war, which will conclude the April 3, 2024, shareholders meeting vote. The daily relative strength index (RSI) is in deep overbought territory at the 80-band. Shares could trigger a sell-the-news reaction after the proxy vote. Pullback support levels are at $114.13, $106.80, $99.28 and $94.83.
