How Disney’s Bob Iger vanquished Wall Street agitator Nelson Peltz

Activist investor Nelson Peltz criticized Disney’s succession planning. PHOTO: MARCO BELLO/BLOOMBERG NEWS
Activist investor Nelson Peltz criticized Disney’s succession planning. PHOTO: MARCO BELLO/BLOOMBERG NEWS

Summary

The CEO rolled out of a string of initiatives that helped inoculate Disney against the activist’s attack.

Bob Iger wanted to make a splash.

The Disney CEO last fall huddled with his top lieutenants, strategizing big-ticket ideas for virtually every line of the entertainment giant’s business—from streaming to movies to sports.

The goal was to set Disney’s businesses on a steady footing. But there was another benefit: The flurry of new ideas might persuade investors to back Disney in a battle with activist investor Nelson Peltz. As the plans took shape, Iger told his team the initiatives would sound the death knell for Peltz’s campaign, people familiar with the matter said.

It turned out to be a tough fight, but Iger emerged victorious.

Disney said Wednesday that shareholders voted to elect its entire slate of 12 board nominees, while Peltz, who has argued Disney needs a fresh voice to hold management accountable, lost his bid to become a director.

Iger prevailed by rolling out a string of initiatives that tackled just about every issue the company faced while inoculating Disney against the activist’s criticism.

The CEO announced a wave of cost cutting that took some edge off Peltz’s complaint that Disney doesn’t have Netflix-like profit margins. Disney launched new ventures in sports-streaming and explored selling off some of its TV networks, making it tough for Peltz to convince investors that the company wasn’t considering all its options.

“Iger and the board took an appropriately sober assessment of the company’s failings, and launched a series of initiatives that seemed to address the things that all investors were concerned about," said Colin Ruegsegger, a senior analyst with proxy adviser Glass Lewis, which advised investors to vote for Disney’s slate. “It was evident that they were picking up steam."

The corporate showdown was expected to be the priciest proxy fight ever, pitting a titan of the entertainment industry against a pit bull activist. For Iger, who for years won near-universal praise in Hollywood and on Wall Street for his stewardship of Disney, Peltz’s proxy fight was an unusual and irritating public rebuke.

The shareholder vote leaves control of the boardroom firmly in the hands of Iger-friendly directors—all but one of whom were appointed on his watch—as the company looks to follow through on a number of major goals, from turning a profit on streaming to reinvigorating a studio business that has lost some of its magic.

Iger’s case was helped by a stream of high-profile endorsements from descendants of Walt Disney and his brother Roy, “Star Wars" creator George Lucas, former Disney CEO Michael Eisner and JPMorgan Chase CEO Jamie Dimon.

“We’re eager to focus 100% of our attention on our most important priorities: growth and value creation for our shareholders and creative excellence for our consumers," Iger said.

The outcome is a blow to Peltz’s Trian Partners, but the scale of support Peltz received—31% of votes cast—was a sign of investor frustrations with Disney’s board.

“I hope the board is on notice that there needs to be real governance oversight and a strong approach with a lot of eyes on it to good succession planning," said Brad Lander, New York City’s comptroller, which oversees investments in Disney from five different retirement systems that total 2.6 million shares worth about $291 million. The funds voted for Disney’s slate based in large part on Iger’s long-term record.

Peltz’s argument that Disney’s board has mismanaged succession planning, one of its core responsibilities, resonated with some major investors. Iger stepped down in 2020 as CEO following a 15-year stint, but returned two years later after the ouster of his favored successor, Bob Chapek.

 

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Disney had said it is engaged in a diligent and thorough succession planning process. Iger’s contract runs to 2026, when he has promised to step down.

The top internal candidates to succeed him include Dana Walden and Alan Bergman, co-chairmen of Disney Entertainment, which includes the company’s cable, streaming and studio units; Josh D’Amaro, chairman of Disney Experiences, which includes Disney’s lucrative theme parks; and Jimmy Pitaro, chairman of ESPN, which is in the throes of a high-stakes pivot to streaming.

Some investors also chafed at the company’s forays into the culture wars and bristled at the top-shelf salaries the company’s leadership has been paid, even during lean years for profits.

Trian said it is proud of what it described as the positive impact the campaign had on drawing Disney’s attention to value creation and good governance.

Big plans

With their marching orders from Iger last year, Disney’s three key divisions—entertainment, experiences and sports—each came up with plans to reinvent or bolster their businesses.In the experiences division, Disney announced plans for large-scale investments in its theme park and cruise businesses. It moved aggressively to take the company further into the world of videogames—an area in which Disney has for decades struggled to get a foothold.Iger over the summer talked with Epic Games CEO Tim Sweeney about the possibility of a partnership with the “Fortnite" maker, people familiar with the discussions said. Those talks eventually led to Disney announcing in February that it would take a $1.5 billion equity stake in Epic and launch a Disney-themed “universe" inside of “Fortnite."

Disney’s movie studio, led by Bergman, announced a surprise sequel to the hit animated movie “Moana," in February. A few weeks later, Disney shook up leadership at its live-action movie studio, which had released a string of box office disappointments, including “The Little Mermaid" and “Haunted Mansion."

Iger has told Hollywood associates in recent weeks that he envisions the shake-up allowing Disney to produce more movies that achieve both commercial and critical success, the way Warner Bros.’ “Barbie"—2023’s highest-grossing movie—and Best Picture-winning “Oppenheimer" dominated the conversation in the movie industry last year, according to people familiar with the matter.Activists often push companies to consider major strategic changes like mergers and asset sales. Peltz didn’t have much opportunity to put forward such an argument.

Iger had said last summer that Disney’s traditional TV business “might not be core" to the company anymore. By the time Peltz had launched its latest campaign, Disney had set in motion a strategic review of its TV unit led by Walden, exploring the possibility of moving some channels into a joint venture with Hearst. Iger ultimately reversed course, saying its TV assets weren’t for sale.

Likewise, Disney was already in talks to consolidate full ownership of the streaming service Hulu—by buying out the stake owned by Comcast—before Peltz entered the picture. Disney in March integrated Hulu into its flagship Disney+ app, a move meant to decrease churn—or cancellations—among streaming subscribers.

Meanwhile, Pitaro, the well-liked ESPN chairman, was hard at work on multiple streaming deals, including the venture with Fox and Warner, which will offer an array of live sports.

Going to the mat

It is rare for proxy fights to make it all the way to a shareholder vote, given that both sides are motivated to avoid the expense and embarrassment of defeat. Typically, companies and activists strike settlements involving board seats or other company changes to avoid a contested vote.

Peltz’s fight with Disney played out until the day of the meeting.

As investors cast their votes, Peltz and Elon Musk discussed the possibility of the Tesla CEO weighing in to support Trian, people familiar with the matter said. Musk called some investors to help Peltz win votes and on Wednesday morning publicly endorsed him on social-media platform X.

Disney executives and board members, including Iger, blitzed major institutional shareholders, touting the company’s progress in moving toward streaming profitability and its plans to revitalize its studio—and arguing that it would be problematic and disruptive for the company and Iger if Peltz joins the board.

To secure votes from individual investors, Disney also ran a host of ads with whimsical music and cartoon character Professor Ludwig Von Drake encouraging shareholders to support its slate of directors. Some 75% of individual investors who cast votes backed the company’s slate.

It persuaded large shareholders BlackRock, Vanguard and T. Rowe Price to support its board nominees and secured the backing of proxy advisory firm Glass Lewis.

Peltz also made a major push with investors, at times meeting the same firm multiple times. The California Public Employees’ Retirement System, or Calpers, backed Trian’s candidates, saying it believed Disney would “benefit from fresh eyes on its board," as did Neuberger Berman.

The activist’s message resonated with shareholder-advisory firm Institutional Shareholder Services, which has significant sway over how investors vote. It recommended that shareholders vote to add Peltz to the board, but not Trian’s other nominee, former Disney CFO Jay Rasulo. ISS supported all but one of the company’s nominees, singling out succession as a key reason for its decision.

About 75% of nominees backed by ISS go on to get elected, a 2023 Barclays report found. Its decision gave more momentum to the opposition.

Some investors protested in other ways. State Street, Disney’s third-largest shareholder and one of the world’s most influential money managers, voted against Maria Elena Lagomasino, head of the company’s compensation committee, and Mark Parker—who leads a committee tasked with finding CEO Bob Iger’s successor.

Peltz, speaking at Wednesday’s meeting, said this had been his second campaign at Disney and, “We hope that this time will be our last."

Rebecca Elliott, Sarah Krouse and Cara Lombardo contributed to this article.

Write to Robbie Whelan at robbie.whelan@wsj.com and Lauren Thomas at lauren.thomas@wsj.com

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