Disney shareholders will decide the fate of Nelson Peltz’s board at the annual general meeting

Bob Iger poses with Mickey Mouse at Mickey’s 90th Spectacular at the Shrine Auditorium on October 6, 2018 in Los Angeles.

Valerie Macon | AFP | Getty Images

Disney Shareholders on Wednesday will resolve a long-simmering proxy dispute led by billionaire investor Nelson Peltz.

Voters will decide whether the company’s board deserves another year together or whether candidates nominated by activist investors, including Trian Partners’ Peltz, should replace certain directors.

Disney’s 2024 Annual Meeting begins on Wednesday at 1:00 p.m. ET. Disney will do it broadcast a live webcast the event, which usually lasts about two hours.

The 81-year-old Peltz joined former Disney CFO Jay Rasulo in a search for two board seats. They have asked shareholders to appoint them as new directors in place of Maria Elena Lagomasino And Michael Froman.

Peltz, who doesn’t like being called an activist but has orchestrated successful campaigns at iconic companies like… PepsiCo, P&G And Wendy’s, controls a $3.98 billion stake in Disney, representing about 2% of total shares outstanding. Most of those shares are owned by former Disney executive and Marvel CEO Ike Perlmutter, who has supported Peltz and is covering some of the costs of soliciting proxies, according to an SEC filing.

Trian claims that Disney’s board has failed to generate sufficient returns in recent years as subscription streaming losses have mounted and traditional TV subscribers have declined. Trian has also argued that Disney’s board has had difficulty planning for succession, pointing out that Iger extended his contract as CEO five times and had to return to the post at the end of 2022 after his handoff to Bob Chapek failed.

Jay Rasulo and Nelson Peltz.

Patrick T Fallon | Bloomberg | Getty Images | Adam Jeffery | CNBC

Disney responded that Iger did it Since returning as CEO, he has righted the ship and the company should be able to recover undisturbed. The company too said Iger and the board are conducting a rigorous succession review process that should be uninterrupted.

“The entire board is forward-thinking, forward-thinking and incredibly disciplined.” [succession] process,” said Morgan Stanley Chief Executive James Gorman, who joined the Disney board in February, said in an interview last week with CNBC’s “Squawk on the Street.”

Disney shares closed Tuesday at $122.82, up 55% from a low of around $79 on Oct. 27 but down 38% from $197 three years ago. The stock is up 36% year-to-date, compared with a gain of 9% S&P 500.

Counting early votes

Both Disney and Trian received support from influential shareholders ahead of Wednesday’s meeting. Disney is leading Trian with more than 60% of shareholder votes already cast. Bloomberg reported on Tuesday.

A top shareholder who did not have access to nonpublic information and spoke on condition of anonymity told CNBC he expected the vote to be extremely close.

About a third of Disney shareholders are private shareholders, who have historically voted in small numbers at annual general meetings. But some individual stakeholders, including Star Wars creator George Lucas and Laurene Powell Jobs, have significant stakes in Disney, giving them an importance comparable to institutions. Both Lucas and Powell Jobs, who hold Disney stock through the acquisitions of LucasArts and Pixar, respectively, have supported Iger and the current board.

“Voter turnout in contested elections tends to be higher because both sides are courting votes from large and small shareholders,” said Ken Squire, founder and president of 13D Monitor.

Institutional investors own the other two-thirds of Disney stock. BlackRock, Disney’s second-largest shareholder, plans to support the company, the Journal reported Monday. CNBC has confirmed T. Rowe Price, The company, which owns about 9.3 million Disney shares according to FactSet, also supports Disney. Institutional shareholders can change their vote until Wednesday’s meeting.

“We believe management has a viable plan to address the company’s important issues,” a T. Rowe spokesperson told CNBC.

Iger is also backed by Mason Morfit’s ValueAct Capital, which has a history of driving strategic change. The two sides signed an “information sharing agreement” in January., which gives Morfit access to non-public information. ValueAct owns just 0.28% of Disney’s outstanding shares, but its value to the company goes beyond voting. Disney was able to rely on ValueAct’s network and expertise when pitching to institutional investors.

The California Public Employees’ Retirement System (CalPERS), Yacktman Asset Management and Neuberger Berman have done so expressed their support for Peltz and Rasulo.

Even for experienced advisors, it is difficult to predict how large institutions will vote. The fight’s high profile and mixed recommendations from proxy advisory firms may make it even more difficult.

“As the stakes increase, so does shareholder independence,” said John Ferguson, senior partner at Saratoga Proxy, who is not involved in the Disney-Trian situation. “Disney, more than most fights, will be about shareholder independence.”

Trian might have done it signaled that it was worried, Rasulo – who was is behind Peltz in the early vote countwon’t get enough support to win a seat, according to the Journal. The activist fund filed a document on Monday focused specifically on the removal Lagomasino.

“She has witnessed years of poor shareholder returns and deteriorating financial performance,” Trian wrote in his filings to shareholders. “Her background in asset management is not relevant to Disney’s business, and she has no skills core to Disney’s strategy that other directors do not also possess.”

The vote for private shareholders ended on Tuesday evening. Disney Estimates suggest it would cost $40 million Obtain support from shareholders. This number does not take into account the time and energy that Iger and his top management team invested in meetings with top shareholders.

Trian estimated it would spend $25 million on the fight. Peltz, his top lieutenants and their advisers met with investors throughout March.

Advice recommendations divided

Shareholder advisory firms Glass Lewis and ISS shared their recommendations to shareholders. Glass Lewis sided with Disney and claims Iger’s return, coupled with this year’s nomination of Gorman and former Sky CEO Jeremy Darroch to the board, has given the company “ample opportunity to launch a more credible succession program and to develop, communicate and implement several key initiatives that are reasonably effective.” appear.” operational and financial weaknesses at Disney.”

ISS responded that failures in board oversight, particularly in the area of ​​succession, led the company to recommend Peltz’s nomination – but not Rasulo’s.

“Incremental change is needed at the company given the company’s underperforming competition and chosen benchmark over several years, operational challenges, and, most critically, the board’s repeated failure to oversee the development of a successor to Iger.” , ISS wrote.

Nelson Peltz, founding partner and CEO of Trian Fund Management, speaks with CNBC’s Andrew Ross Sorkin in New York on July 17, 2013.

Heidi Gutmann | CNBC, NBCU Photo Bank, NBCUniversal via Getty Images

The major shareholder who spoke to CNBC said ISS’s decision to back Peltz over Lagomasino was a big surprise.

While supporting Peltz, ISS said shareholders should not support Rasulo, citing his previous positioning as a potential successor to Iger.

“While we have no concerns about his ability to serve as an objective director, we recognize that Rasulo’s potential presence could create additional tensions on the board,” ISS wrote.

Blackwells could play spoiler

Peltz and Rasulo aren’t the only two new board members that shareholders can vote for. Activist investor Blackwells, run by Canadian heir Jason Aintabi, is also maintaining a list of new potential directors.

Best known for his successful campaign 2022 to remove Peloton CEO John Foley, Blackwells has nominated media manager Jessica Schnell, SL Green Director Craig Hatkoff and TaskRabbit founder Leah Solivan as three replacement candidates for the Disney board.

Blackwells does not support Trian’s campaign and has different recommendations for Disney than Peltz and Rasulo, including a possible breakup of the company by splitting its own properties into a publicly traded real estate investment trust.

Nevertheless, Blackwell was also a thorn in Disney’s side. The investment firm released a presentation last month detailing a previous relationship between ValueAct and Disney. It said the investor earned tens of millions of dollars in fees for managing Disney pension funds.

ValueAct has not managed Disney assets since the company began building a stake in late 2023, a person familiar with the matter previously told CNBC. The agreement still raised questions about ValueAct’s support of the company and whether Disney’s board should have disclosed the previous relationship.

Disclosure: Sky is owned by Comcastthe parent company of CNBC.

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