Robert Iger returns as Disney CEO as Bob Chapek is ousted

BY ROBBIE WHELAN | UPDATED NOV 21, 2022 04:49 AM EST

Iger returns to the entertainment company he left only late last year; company’s stock price up premarket

Walt Disney Co.’s board of directors on Sunday night replaced Chief Executive Bob Chapek with Robert Iger, the company’s former chairman and CEO who left the company at the end of last year, according to a company announcement.

“The board has concluded that as Disney embarks on an increasingly complex period of industry transformation, Bob Iger is uniquely situated to lead the company through this pivotal period," said Susan Arnold, chairman of Disney’s board, in a statement.

“We thank Bob Chapek for his service to Disney over his long career, including navigating the company through the unprecedented challenges of the pandemic," she added.

The surprise change comes at a tumultuous time for Disney.

This month, the company reported weaker-than-expected fourth quarter financial results, killing the momentum built up over a strong year that saw record revenue and profits in multiple divisions, especially the one that includes theme parks. Disney’s theme park business has recovered strongly since the coronavirus pandemic shut down its venues across the world, but the division continues to subsidize widening losses in the streaming video business.

Mr. Chapek has said repeatedly that he expects the streaming business to be profitable by September 2024. In the most recent quarter, though, it lost $1.47 billion, more than twice the year-earlier loss.

The company also cautioned that its profitability target would only be met if there wasn’t a significant economic downturn, the first time it has added such a caveat. Disney’s stock price shot up 9% to over $100 a share in pre-market trading early Monday. Some observers said the management change might benefit the company’s stock.

Disney has also faced pressure from multiple activist hedge-fund investors this year. Trian Fund Management LP earlier this month bought more than $800 million worth of Disney stock in the days following the company’s lackluster fiscal fourth-quarter earnings report, according to people familiar with the matter. The stake—under the 5% disclosure threshold—isn’t as large as Trian would like it to be and will likely grow, subject to market conditions, they said.

The activist fund, which was founded by Nelson Peltz, Ed Garden and Peter May, is seeking a seat on Disney’s board as it pushes the entertainment giant to make operational improvements and cut costs, according to the people. Trian has studied the business for a long time, they added.

Trian’s view is that Mr. Iger shouldn’t be back in control of the company, the people said.

Trian’s interest comes after activist investor Dan Loeb’s Third Point LLC said in August that it had taken a stake in Disney stock after having liquidated its position earlier this year. Mr. Loeb sent a letter to Mr. Chapek asking for major changes to the business. He called for Disney to spin off ESPN, refresh its board and cut spending, though a month later he backed off on the demand to change control of the sports channel.

In response to Mr. Loeb’s suggestions, the company appointed Carolyn Everson, a veteran digital advertising executive, to its board, and agreed to a standstill with Third Point.

In an email to employees Sunday night, Mr. Iger said he was returning to the company.

“It is with an incredible sense of gratitude and humility—and, I must admit, a bit of amazement—that I write to you this evening with the news that I am returning to the Walt Disney Company as chief executive officer," he wrote in the email, which was viewed by The Wall Street Journal.

Several top Disney executives first learned the news that Mr. Iger was returning after they read his Sunday email, while some of them were together attending an Elton John concert at Dodger Stadium in Los Angeles that was streamed live on Disney’s flagship streaming service Disney+, according to people familiar with the matter.

Mr. Chapek was also expected to attend the event and the company had planned for him to introduce Mr. John from the stage before the concert, according to two people with knowledge of the plans, though it isn’t clear if Mr. Chapek attended, they said. Other Disney employees said they were baffled by Mr. Iger’s Sunday email and immediately began asking if the message to employees was real or if it came from a hacked email account.

Negotiations between Mr. Iger and the board to return as CEO were initiated only in recent days, according to a person familiar with the talks. Mr. Iger has said publicly on at least two occasions over the last year that he isn’t interested in returning to Disney. In recent months, he has focused on investing in and advising startups, particularly in the technology industry.

Adding to the surprise, Mr. Chapek, who has served as CEO since February 2020, over the summer saw his contract renewed through the end of 2024. At the time, Ms. Arnold, the board chair, said that while the company was “dealt a tough hand by the pandemic," Mr. Chapek “not only weathered the storm but emerged in a position of strength."

Disney’s stock was trading flat relative to Friday’s closing price of $91.80 a share in after-hours trading Sunday night. Some observers said the management change might benefit the company’s stock.

“Iger will be viewed as a catalyst to improve the content aspects of Disney, and we expect bigger potential strategic changes around the long-term shape of" the streaming business, wrote Wells Fargo analyst Steven Cahall in a note to clients.

Mr. Chapek couldn’t be reached for comment.

Despite the board’s unanimous vote of confidence earlier this year, Mr. Chapek’s leadership over the last year has been closely watched and speculated-about, especially after a high-profile dust-up earlier this year with Gov. Ron DeSantis, a Republican of Florida. Disney, which employs more than 70,000 in Florida, took a public stand against the Parental Rights in Education bill, a piece of legislation that curbed classroom instruction on sexual identity and gender in elementary schools.

Mr. DeSantis subsequently signed into law a bill that terminated a special tax district that has allowed Disney to self-govern the land that houses its Orlando-area theme parks, hotels and resorts.

Making things more uncomfortable was Mr. Chapek’s brusque relationship with 71-year-old Mr. Iger. Mr. Chapek, 62, resented what he viewed as Mr. Iger interfering in discussions with Disney’s board about strategic decisions, as well as multiple interviews that Mr. Iger gave after Mr. Chapek had taken over as CEO in which Mr. Iger described himself as playing a key role in helping the company navigate the pandemic, according to people familiar with the two men’s relationship.

That awkwardness came under a spotlight in March during Mr. Chapek’s handling of the issue with the Florida governor. Inside the company, executives at the time complained that Mr. Chapek didn’t have the deft touch and finger on the pulse of how employees were feeling that Mr. Iger showed during his time running the company, according to current and former employees.

Mr. Iger, for example, wasn’t shy about taking progressive political stances on issues like abortion and voting rights, while Mr. Chapek said he hesitated to weigh in on the Florida education bill because he didn’t view it as the company’s place to wade into state politics.

Mr. Chapek later admitted that he badly miscalculated and misjudged what was important to Disney’s employees, especially those belonging to the LGBT community. In a letter to Disney staff he said that he had failed to be “a stronger ally" to employees and apologized for letting them down.

After the imbroglio in Florida, Disney fired its top communications and government affairs executive and hosted a series of town hall-style meetings to try to mend fences with employees.

Even after Mr. Chapek’s contract was renewed, rumblings that his position was becoming untenable were building, people familiar with the matter said. In recent weeks, some top Disney executives have told colleagues that they were losing confidence in the CEO, these people said. Mr. Chapek was perceived as having never truly won over creative executives at the company’s TV and film studios and the designers of Disney theme parks known as imagineers, other Disney employees said.

Mr. Iger served as Disney’s chief executive between 2005 and 2020, before stepping back to take on the role of executive chairman and help manage the company’s creative pipeline. During his 15 years as CEO, he oversaw a series of acquisitions that transformed the entertainment giant into a Hollywood powerhouse, including buying Pixar Animation Studios, “Star Wars" production house Lucasfilm Ltd., Marvel Entertainment and a giant basket of entertainment assets purchased from 21st Century Fox Inc.

In one of Mr. Iger’s final moves, he oversaw the late 2019 launch of Disney+, the company’s flagship streaming service. The coronavirus pandemic that took hold in early 2020 catapulted streaming to a new level of importance as movie theaters and theme parks closed and consumers were glued to their couches. Disney+ has added 164.2 million global subscribers in three years of operation, as of the most recent quarter.

In an October interview with The Wall Street Journal, Mr. Chapek said that his goal as CEO was to “fearlessly look forward" and bring Disney into the modern era using contemporary technology and to build on the innovations left behind by his predecessors, including company founder Walt Disney and former CEOs Michael Eisner and Mr. Iger.

“I want to leave the Walt Disney Company in better shape for the next one hundred years than when I assumed this position," he said at the time. “I’m occupying this seat at this moment in time, but I know I’m not the last person to occupy this seat."