DIS Doesn't Plan to Do "Everything" Trian Wanted

Last week, DIS and Trian deprived us of the engaging spectacle of their proxy contest. DIS announced a restructuring, and Trian withdrew its nomination of CEO Nelson Peltz to stand for election to the DIS BoD. Peltz gushed on CNBC, “Now Disney plans to do everything we wanted them to do."

Does it? We looked closely at Trian's demands and the new DIS plan. While the plan corresponds to some of those demands, it leaves out the core corp gov components that formed the foundation of the Trian proxy contest. It sure looks like Trian faced a tough one. Instead of fighting and losing, it wisely stood down as it claimed credit for the DIS restructuring.

Trian Wanted Much

Trian expressed its thesis in a presentation, a now-shuttered website, and its proxy statement. Trian identified three broad concerns:

• corp gov
• "failed succession planning"
• "over-the-top" exec comp
• strategy and operations
• "lack of cost discipline"
• "flawed DTC [direct-to-consumer] strategy"
• capital allocation
• "enhance accountability" after the Fox deal
• " reinstate dividend" by 2025.

Trian emphasized corp gov, especially in its proxy statement. There, it urges shareholders to support Peltz and oppose Michael Froman, who "has no experience as a public company director outside of Disney, and ... has overseen weak corporate governance at the Company." Earlier, we assessed this tactic in the universal proxy context.

DIS Delivered Some

In its earnings presentation for the December 2022 quarter, DIS disclosed:

• $5.5 billion in operating expense reduction over the next few years, including cutting 7,000 employees
• Reinstate its dividend by the end of 2023
• Reorganize into three business units
• A succession planning committee of the BoD.

In an interview, CEO Bob Iger indicated he plans to serve out his two year term, and then retire for real.

These changes correspond to some of Trian's demands. The operating expense reduction and reorganization appear to fall within the strategy and operations component of the thesis. The dividend announcement beats by two years what Trian sought.

DIS conspicuously failed to address corp gov, including capital accountability and exec comp discipline. After previous succession planning problems and with Iger firmly in charge, we don't find a new BoD committee and Iger's comments to a reporter especially credible.

Trian centered its proxy contest on corp gov. It's the entire basis for Peltz seeking a BoD seat, and for opposing Froman. Why not finish the job?

What Happened?

Once DIS announced its restructuring plans, institutional investors fell into line behind Iger. They cheered his return last year, and love him as much today.

Trian started soliciting proxies in the past few days. We guess it heard investors would have a hard time voting against DIS now.

Trian has a superb case that corp gov did not improve. Investors confront the same long-standing problems with Iger, including his imperious dealmaking, lavish exec comp habits, and slow exit. Arguing this asks the extensive DIS retail shareholder base to understand an arcane subject that sometimes overwhelms even us corp gov aficiandos, and thus to think much harder about BoD voting than usual. Institutional investors in thrall to Iger just don't seem to care right now.

Trian faced the prospect of spending $25 million to likely lose the proxy contest, instead of writing off the $2-3 million it had already spent. It also has a decent gain on its DIS position, which of course is the point of this entire exercise. As BoD attorney Patrick Gadson put it, “Part of activism is always realizing that the aim of an activist is not to get board seats...They don’t get paid to get board seats. They make money by, when it all boils down to it, stock price appreciation.”

Of course, Trian wouldn't come out and say this. Instead, Peltz does a quick hit on CNBC, claims credit for the correspondence between DIS plans and Trian demands, collects the gains, and moves on.

This situation conveys much. We regrettably still tolerate CEO royalty like Iger. Nelson Peltz is a shrewd investor who understandably takes solid profits over obscure principle. Most of all, investors care about corp gov only sometimes. When Iger dithers more about his exit, or jams through another huge deal, DIS shareholders may rue the day they declined the credible chance to watch its royal CEO a little more closely.