After Disney (NYSE: DIS) released its earnings for the fiscal first quarter of 2023, activist investor Nelson Peltz whose firm owns Disney shares ended the proxy fight.
Peltz runs the Trian Fund Management which took an $800 million stake in DIS in Q4 2022. The fund nominated Peltz for a board seat and started a proxy fight.
Trian had then said, that the fund’s “objective is to create sustainable, long-term value at Disney by working WITH Bob Iger and the Disney Board.”
It emphasized, “We recognize that Disney is undergoing a period of significant change and we are NOT trying to create additional instability.” Peltz meanwhile said that Disney “lost its way resulting in a rapid deterioration in its financial performance.”
Peltz ends Disney proxy fight
Meanwhile, after Disney released its earnings for the December quarter, Peltz said that the proxy fight has ended. During the earnings call, Bob Iger, who took over as the CEO in November, announced a reorganization plan.
Disney would now have three reporting segments. Disney Entertainment, ESPN, and Parks, Experiences & Products. Iger also said that the company would not be spinning off ESPN.
Iger also gave more power to the company’s creative teams. During the earnings call, he said, “I have always believed that the best way to spur great creativity is to make sure the people who are managing the creative processes feel empowered.”
He emphasized that “our new structure is aimed at returning greater authority to our creative leaders and making them accountable for how their content performs financially.” He admitted that the previous structure under his predecessor Bob Chapek “severed that link.”
Iger announces massive cost cuts
During the earnings call, Disney said that it would lay off around 7,000 employees. It is looking to cut costs by around $5.5 billion of which $3 would be from content and the remaining from non-content.
Iger also said that the company would approach the board to restore the dividend. He stressed, “Now, it’s time for another transformation, one that rationalizes our enviable streaming business and puts it on a path to sustained growth and profitability while also reducing expenses to improve margins and returns and better positioning us to weather future disruption, increased competition, and global economic challenges.”
Disney withdraws streaming guidance
Disney also withdrew its streaming guidance for the fiscal year 2024 and like Netflix, it would no longer provide forward guidance for subscriber numbers. It is instead focusing on profitability and reiterated that the streaming business would become profitable by the end of the fiscal year 2024.
After the earnings call, Peltz ended the proxy fight and said, “Now Disney plans to do everything we wanted them to do. We wish the very best to Bob, this management team and the board.” He however added, “We will be watching. We will be rooting.”
Meanwhile, while DIS stock was higher in early price action yesterday after the earnings beat, it eventually closed in the red.
Wall Street on Disney Transformation
Wall Street has a somewhat mixed view of Disney’s transformation under Iger. BofA Securities analyst Jessica Reif Ehrlich said, “While we are encouraged by Bob Iger’s strategic vision for Disney, this is clearly the first phase in Disney’s transformation, which will require adept execution.”
Michael Morris of Guggenheim raised his target price from $115 to $140 and said, that he is “more confident that the new structure and disciplined approach can drive more sustainable future margin expansion at the segment currently known as Disney Media and Entertainment Distribution.”
Disney to launch sequels to Frozen and Toy Story
Jason Ware, chief investment officer at Albion Financial Group is bullish on Disney’s transformation. He said, “As streaming turns to profitability and mark my words, they are going to be profitable, it might take a few more quarters, but when they get there, that is an incremental headwind that will come off earnings per share.”
Describing Disney as a “wide-moat company with a cradle-to-grave business,” he emphasized, “Kids are thrown into the Disney franchises and the Disney business model will stay with them for life. That is unchanged.”
Notably, Iger has said that the company would launch sequels to popular franchises like Frozen and Toy Story.
Transformation is a long process
Paul Meeks, portfolio manager at Independent Solutions Wealth Management, meanwhile said that Disney’s transformation is a long-drawn process. He said, “Man, when you do a restructuring of that size with a company this big, it’s not going to be easy. It’s going to be very tough, with Bob Iger at the helm or not.”
Meeks added, “In the meantime, you can buy many stocks in the consumer discretionary sector that don’t have the heavy lifting of a restructuring. They still have America’s best brands, and the products are reasonably valued.”
To be sure, corporate transformations are not easy. Iger meanwhile has two years to implement his plans at Disney and he has emphasized that he does not intend to stay after two years when his contract ends.
Among others, he might need to decide on the company’s stake in Hulu. The company has until 2024 to buy Comcast’s 33% stake in the company. Iger has said that all options related to Hulu are “on the table” and said that the company has the capacity to add more debt if it were to acquire Comcast’s stake.
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