Disney's (DIS) proxy battle with activist investor Nelson Peltz will be a pain point and distraction for CEO Bob Iger, according to one media analyst.
"This push by Nelson Peltz almost seems like a little bit of an attack on Bob Iger," Bloomberg Intelligence analyst Geetha Ranganathan told Yahoo Finance in a new interview. "It's an unnecessary distraction."
On Wednesday, Disney announced Nike executive chairman Mike Parker will take over Susan Arnold's position as chairman of the board, and also recommended shareholders vote against Peltz in his efforts to win a seat on the company's board.
Peltz's Trian Fund Management said it owns approximately 9.4 million shares of Disney's stock, which equates to roughly $900 million. The hedge fund, which disapproved of Iger's surprise return, is pushing for additional cost cuts, operational adjustments, and a post-Iger successor — something the company wants as well.
"Trian believes that Disney’s recent performance reflects the hard truth that it is a company in crisis with many challenges weighing on investor sentiment," the hedge fund said in a statement on Wednesday.
"While we acknowledge that Disney, like many media companies, is undergoing a challenging pivot to streaming, Disney also benefits from owning best-in-class intellectual property, a more diversified business mix, and a Parks business that is enjoying all-time high profitability. As such, we believe that the Company’s current problems are primarily self-inflicted and need to be addressed immediately."
Disney's stock gained as much as 4% to trade at its highest level since November on Thursday as investors digested the news.
"While senior leadership of The Walt Disney Company and its Board of Directors have engaged with Mr. Peltz numerous times over the last few months, the Board does not endorse the Trian Group nominee, and recommends that shareholders not support its nominee, and instead vote FOR all the Company’s nominees (noted above)," Disney in a news release on Wednesday.
In its statement on Wednesday, Disney defended the company's stock performance under Iger's watch, noting during his first turn as CEO the company's total shareholder return totaled 554%, topping the 244% total return realized by the S&P 500 over that period.
"[The proxy fight] helps in the sense that it does keep management honest, it keeps them on their toes, especially when it comes to that issue in succession," Ranganathan said.
"But at the same time, if Bob Iger is going to spend most of his time just looking out for his job and keeping it, that's not necessarily good news for the company as a whole."
Disney faced a rough 2022 as shares slid about 45%, marking the worst annual stock performance for the House of Mouse since 1974.
Streaming profitability, the future of Hulu, and a possible ESPN spin-off all hang in the balance as Iger continues to navigate a bruised business beset with leadership challenges, unfavorable price increases, and a direct-to-consumer division struggling to turn a profit.
"They're at a very pivotal moment in terms of their transition from the legacy TV business to the streaming business," Ranganathan said. "It's all going to come down to the streaming business and how they are going to reinvigorate profitability."
In its most recent fiscal year, losses for Disney's direct-to-consumer unit, which includes Disney+, Hulu, and ESPN+, totaled $4 billion for the year. High content costs were largely to blame as the company upped its content budget by $8 billion in 2022 to a whopping $33 billion for this year.
Ranganathan stressed Disney will have to execute on content creation and content distribution, especially as recent animated titles like "Strange World" disappointed at the box office while franchise fatigue continues to mount for brands like Marvel and Lucasfilm.
The analyst added the media giant must also curb its spending, one of the main sticking points behind a possible ESPN spin-off.
Although Ranganathan said she does not believe Disney will spin-off the brand at this point, mostly due to its ability to fund Disney's streaming ambitions, she does see Iger scaling down the level of sports rights and renewals: "This is a very careful balancing act."
Alexandra is a Senior Entertainment and Media Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
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