In recent days, "Chengdu Disneyland crowd control" has become a hot topic on Weibo. Of course, there's no Disneyland in Chengdu. Curiosity piqued, I clicked to find out that it's actually a regular community fitness center in Chengdu that gained the nickname "Chengdu Disneyland" due to a pun in the lyrics of a popular internet song. Recently, this trendy spot has had to restrict visitor numbers due to overcrowding.
Disneyland has only six theme parks worldwide, located in Shanghai, Hong Kong, Tokyo, Paris, Florida, and Anaheim near its headquarters in California. China and the United States are the only countries with two Disney theme parks, highlighting the significance of these two massive markets.
There were rumors last year that Disney might set up its third theme park in China in Wuhan or Chengdu to tap into the vast markets of the central and western regions. However, these rumors were quickly denied by Disney's China division.
Meanwhile, across the ocean in Los Angeles, the real Disney is embroiled in a palace intrigue drama, which is more thrilling and full of intrigue than many of Disney's lackluster box office performances in recent years. One could even say it's the most eye-catching proxy battle among corporate giants in recent years, revolving around the fight for voting proxy rights.
This is the power struggle surrounding the recent Disney board of directors election. On one side is the 73-year-old Disney CEO, Bob Iger, and on the other is the activist investor and founding partner of Trian Partners, Nelson Peltz. Both sides have poured $40 million into this proxy fight.
Seeking Two Board Seats
The core of the battle lies in control. Over the past two years, Trian Fund has initiated two proxy fights, seeking two seats on Disney's 12-member board, nominating Peltz and former Disney CFO Jay Rasulo to bring new voices to the management.
Iger is the legendary CEO of Disney, having served as CEO twice. During his previous 15-year tenure, he led Disney's acquisitions of Pixar, Marvel, Lucasfilm, and 21st Century Fox, turning Disney into a global media giant and earning himself the reputation of "world's best CEO." Iger officially stepped down as Disney CEO in 2020, handing over the reins of this media behemoth to theme park division head Bob Chapek.
However, Iger didn't stay retired for long. Due to dissatisfaction among Disney shareholders with Chapek's performance, just two years later, Iger came out of retirement in November 2022 to serve as interim CEO for a two-year term. In July 2023, Disney's board decided to extend Iger's term until 2026, giving him more time to turnaround Disney's business and select a successor once again.
On the other side of the drama is the 81-year-old hedge fund tycoon, Peltz. He, along with Carl Icahn and Bill Ackman, is one of America's most prominent hedge fund titans and activist investors. Their modus operandi involves acquiring large stakes in publicly traded companies and then pressuring the boards for board seats, forcing companies to make strategic decisions favorable to them.
Peltz and Icahn, the two "wolves of Wall Street," have even joined forces before. In 2014, their funds acquired nearly 18% of the shares of discount retailer Family Dollar, forcing the company to sell for $8.5 billion, yielding a profit of nearly $600 million.
As a side note, Peltz is one of the most influential billionaires in Florida, with personal assets close to $2 billion. He owns a nearly $400 million property in Palm Beach, Florida. He is a major donor to the Republican Party and publicly expressed support for Trump's presidential candidacy.
In 2022, Peltz's daughter, Nicola Peltz Beckham, married the eldest son of the Beckham family, Brooklyn Beckham, in a lavish wedding held at Peltz's Palm Beach mansion in Florida. The gossip media at the time commented, "Brooklyn marries into the elite."
Request for Board Restructuring
Let's revisit the power play initiated by Peltz. In 2022, Peltz, through Trian Fund Management, orchestrated the acquisition of approximately 33 million shares of Disney, valued at $3.5 billion at the time, kicking off his aggressive maneuvers.
Peltz not only demanded seats on Disney's board but also publicly expressed dissatisfaction with Iger's governance, calling for accountability from Disney's management and even pressuring for the swift selection of the next CEO.
In fact, Peltz and Iger used to be on good terms, but as Peltz openly criticized Disney's management and called for a board restructuring, their relationship deteriorated rapidly, turning them into fierce opponents. To Iger, Peltz was undoubtedly openly challenging him.
Peltz indeed harbored numerous grievances against Disney and Iger. Despite Disney's stock rising by 30% this year, it had slid by 11% over the past two years. Against the backdrop of a booming U.S. stock market over the past couple of years, where Trian's other investment assets saw their values soar, their Disney holdings were shrinking.
Although Bob Iger's CEO contract at Disney extends until 2026, the entry of Peltz and Lasseter onto the board won't affect his tenure. However, if shareholders support Peltz's board seat, it could disrupt Disney's business plans under Iger and likely pave the way for Lasseter to assume the CEO position.
Lasseter was once considered a top contender to succeed Iger. However, after being excluded from the succession list, he left Disney in disappointment back in 2015. Over the past year, with support from Trian Fund, Lasseter has expressed his ambitions to lead Disney again. In interviews, he has outlined his vision for transforming Disney's business, clearly indicating his desire to succeed Iger.
The Battle of Words
Before the drama of this power struggle unfolded, both sides engaged in a war of words. Peltz openly criticized Iger's performance, pressuring for changes in Disney's board. Unable to hold back, Iger retaliated, accusing Peltz's board entry of "disrupting the company and only bringing destructive effects." Peltz, on the other hand, directly insulted Iger as "stupid," dismissing Iger's Disney turnaround plan as nothing more than a "beautiful fairy tale."
Both sides have their own supporters in the media. Musk, who has always been critical of Iger, seized the opportunity to amplify the situation, endorsing Peltz's entry onto Disney's board on X platform (formerly Twitter).
Musk argued that, similar to Peltz's actions in other companies, he could drive Disney's transformation, improve product quality, and significantly boost Disney's stock price, aligning with the interests of shareholders. Musk even suggested that if Peltz joins Disney's board, he would consider buying Disney stocks, despite not currently holding any.
Musk's stance reflects his clear-cut allegiances. On one hand, he has a close personal relationship with Peltz, even staying at Peltz's Florida estate during vacations and recently having a brief meeting with former President Trump at Peltz's mansion. On the other hand, due to Disney ceasing advertising on X platform, Musk harbors animosity towards Iger, openly expressing hostility towards advertisers represented by Iger, even cursing them to "Fxxk Off" in public.
Jeffrey Sonnenfeld, president of the Yale Chief Executive Leadership Institute and a renowned management professor, criticized Peltz as "one of the worst-performing activist investors," with a history of "entering boards to destroy shareholder value."
In addition to his criticism of Peltz, Sonnenfeld specifically praised Iger as the best CEO in Disney's history in Fortune magazine, stating, "He not only inherited Disney's brilliance but also initiated the most commendable business turnaround and transformation in the history of the media and entertainment industry."
Streaming is the focal point of contention
Peltz's core criticism of Iger revolves around streaming. Streaming business is the future strategic direction set by Iger, and the Disney+ platform launched at the end of 2019 was the core business he left before his last retirement.
After four years of development, the Disney+ platform has amassed 150 million subscribers. When considering Hulu and ESPN, Disney is currently the largest player in the streaming industry. However, these three major streaming businesses have consistently failed to turn a profit, making the loss-making streaming business the focus of investors' attention.
Over the past two years, Peltz has consistently criticized Disney management for failing to effectively reverse the streaming business's losses. He explicitly stated that the Disney management team led by Iger should raise the profit margin of the streaming business to 15%-20%, approaching Netflix's level.
However, after Disney's senior management launched a series of cost-cutting measures including layoffs, the recent losses in streaming have significantly narrowed, seemingly showing the light at the end of the tunnel for streaming losses and somewhat alleviating Peltz's criticism. Additionally, Iger has publicly stated that he would consider the possibility of selling the television network business.
In the most recent quarter, although Disney's streaming subscriber numbers fell short of market expectations, the streaming business's loss narrowed significantly from $984 million in the same period last year to $138 million. Apart from cost-cutting, the narrowing of streaming losses is mainly due to Disney's continuous increase in streaming fees and efforts to combat account sharing.
Iger's heavyweight allies
Of course, winning the proxy battle requires more than just a war of words in the media; Iger has the support of many major Disney shareholders. It is with the trust of these influential shareholders that Iger was able to return to Disney at the end of 2022, once again taking the helm of this entertainment and media giant.
Major Disney shareholders and notable figures supporting Iger include renowned director George Lucas, JPMorgan Chase CEO Jamie Dimon, former Disney CEO Michael Eisner, and Mason Morfit, CEO of investment fund ValueAct Capital.
Furthermore, Iger has also gained the trust of the Disney family. Abigail Disney, a member of the Disney family, publicly endorsed Iger, criticizing Peltz as a "wolf in sheep's clothing" and alleging ulterior motives for the board seats. Although the Disney family's holdings are not large, they still wield considerable influence.
Another significant shareholder, Laurene Jobs, widow of Steve Jobs, has been a staunch supporter of Iger. It was Iger's strong push in 2006 that led Disney to acquire Pixar for $7.4 billion, making Steve Jobs the largest individual shareholder of Disney. After Jobs' passing, his widow sold off some Disney shares but remained a major shareholder.
In last week's Disney shareholder vote, all 12 board nominees nominated by the board were elected with significant margins. Iger himself received 94% of the support votes, indicating that he still enjoys the trust of the vast majority of shareholders. Maria Elena Lagomasino, the shareholder Trian hoped to replace, also garnered 63% support, while the challenger Peltz received only 31% of the votes.
Iger's ability to win the power struggle can be attributed not only to the support of major shareholders but also to the backing of grassroots retail investors. One-third of Disney's shares are held by retail investors, and approximately three-quarters of them supported Iger, equivalent to a quarter of the overall support.
From the voting results, it's clear that Iger continues to have the full support of Disney's board of directors. Most of the 12 directors are long-time friends of his and were the decision-makers who called him back into action in 2022. Over the next year, Iger can continue to advance his Disney business transformation plan without worrying about interference from aggressive investors.
However, investor dissatisfaction still lingers. After the voting results were announced, Iger declared victory: "With this distracting proxy contest behind us, we are eager to focus all our energies on the most important work of creating growth and value for shareholders and delivering outstanding creativity for consumers."
Trian Fund, which lost the proxy contest, expressed disappointment, stating, "We are proud of our efforts to pressure Disney to refocus on value and enhance governance." After failing to secure board seats for two consecutive years, whether Peltz continues to hold shares and wait for a third chance or chooses to sell off Disney shares and exit remains the focus of external attention.
Although Iger ultimately triumphed in this power struggle, the results still leave him somewhat embarrassed. Despite Disney's stock price having risen by 30% this year, 31% of shareholders still supported Peltz's entry into the board, signaling a lack of trust in Iger. Moreover, while some major shareholders voted in support of Iger, they also subtly expressed dissatisfaction.
The New York State Retirement Fund holds 2.6 million Disney shares. While they voted in support of Iger, they also subtly reminded him, "The Disney board needs genuine governance oversight and favorable business strategies, as well as succession planning."
Ric Prentiss, an analyst at Raymond James, stated in a report that this prolonged disturbance (power struggle) has finally come to an end, and we are satisfied with it. Disney has paid a hefty price for it, but Trian's analysis of Disney's issues does have merit.
To appease investors, Iger outlined a brighter future for the next few years: many "exciting new films" are set to be released, including sequels to popular blockbusters such as "The Lion King," "Deadpool," "Inside Out," and "Moana." Somewhat awkwardly, just a few months ago, Iger publicly acknowledged that Disney had produced too many sequels.
Of course, the most pressing question for outsiders is who will succeed Iger as the new CEO of Disney. Reports suggest that Disney's board is evaluating several internal executives, including Dana Walden and Alan Bergman, co-chairmen of Disney Entertainment, and Josh D'Amaro, chairman of Disney Experiences.
Iger has already promised not to seek re-election and to step down by 2026. However, he still has over two years left in his term, and Disney's board is not in a hurry to make a final decision. But after being ousted as a Disney director, at least Lasseter is out of the running again.
