By Carleton English
Walt Disney is caught in a contentious battle with multiple activist investors. Shareholders should come out ahead no matter who the winner is.
Right now, there are no fewer than four activists taking aim at the House of Mouse. That should come as no surprise given that Disney stock has lost more than half its value since hitting a record high in March 2021. It’s not all contentious, though. Just this past week, Disney entered into an information-sharing agreement with one activist, ValueAct Capital, which is also pledging to support Disney’s board slate, while rival investment firm, Blackwells Capital, appears sympathetic to management but is pushing three of its own directors.
Trian Fund Management is the most belligerent — it’s seeking two board seats, while lambasting Disney for “continued poor performance” — and has an ally in Ancora Holdings.
That’s a lot of drama — even for the entertainment conglomerate behind the Marvel Cinematic Universe. There’s likely to be even more mudslinging over the next few months. Proxy fights, especially ones with multiple actors, are expensive and can be distracting to management. But in this case, it may be just what Disney needs.
Disney has already responded to activist pressure. Early last year, amid the first salvo from Trian, Disney announced $5.5 billion in cost cuts. That was enough to keep Peltz at bay, until performance continued to languish, forcing Disney to announce an additional $2 billion in cost cuts in November and its intention to reinstate its dividend. Trian still wasn’t placated, but the announcement sent Disney stock up 6.9%.
Change should keep coming, whether it’s board refreshment, improved succession planning, or tying executive pay to financial performance, as Trian has demanded. And that should be good news, regardless of which path Disney follows — even as Mickey Mouse falls into the public domain.
“There’s a balance between distraction and incremental pressure that can be felt by management,” says Guggenheim Partners analyst Michael Morris, who has a $115 price target on Disney stock, up TK% from Thursday’s close. “Having a constructive activist partner can be a good thing.”
Morris sees Disney’s gains coming through improving the performance of its content slate. Disney, like most media companies, was “overserving” its customers in the earlier phases of its streaming ambitions, pursuing growth at any cost. The recent writers’ strike, however, may have leveled the playing field for all providers, forcing them to be more disciplined with their spending as production ramps up. Disney also has an enviable catalog of movies — one that parents are sure to be willing to pay up for — that should give it an advantage.
“Disney has the unique power of its intellectual property and franchises, ” Morris says.
That certainly feels true, at least from personal experience. Feeling nostalgic one rainy weekend, I forked over $17.99 to watch the Disney classic Bedknobs and Broomsticks on Amazon Prime. Had I been savvier, I could have just paid the $13.99 for a month of Disney+ and taken in Escape to Witch Mountain and other ’70s and ’80s classics, too.
Disney stock also looks like a compelling value. At 19.8 times forward earnings, it trades roughly on par with the S&P 500 index and well below its five-year average of 29.4 times, though getting back to that level is probably wishful thinking. Still, the average analyst surveyed by FactSet sees shares climbing 12.5% to $103.08, which could prove conservative.
This early in proxy season, it’s tough to know just who will prevail in the battle for the future of Disney. Just know that the journey back to the Magic Kingdom has begun.
Write to Carleton English at carleton.english@dowjones.com