ONE MORE UPDATE: What's Up With Trian and Blackwells?

Programming note: OK, just one more. We learned a little more about this situation, so here you go. Now they should be done, at least with anything that illustrates universal proxy card, or maybe until DIS announces the date for the AGM.

Trian filed one more preliminary proxy statement this week, with a key disclosure, namely the two DIS directors it plans to oppose with its two nominees. This follows from the logic of universal proxy, and continues Trian's efforts from its abandoned proxy contest in early 2023. It also suggests they will again emphasize corporate governance deficiencies at DIS.

Trian plans to nominate CEO Nelson Peltz and former DIS CFO Jay Rasulo. Everyone knows Peltz, and Rasulo is, well, a former long-time insider and one-time CEO contender. Trian disclosed it plans to oppose DIS incumbents Michael Froman and Maria Elena Lagomasino.

When Trian nominated Peltz alone in 2023, it opposed Froman, based largely on lack of experience in public companies and boards of directors. At the time we looked at Trian's arguments against Froman, and expect it will reiterate them here. Trian asserts Lagomasino has similar corp gov flaws. It looks mostly at her experience as a member and chair of the Compensation Committee, claiming she has "overseen a number of misaligned compensation practices." It also cites her "overseeing problematic compensation practices at other companies where she has served on the compensation committee, including as chair." For good measure, Trian notes both currently serve on the Nominating and Corp Gov Committee, the locus of Trian's thesis and case.

Trian goes further, showing both have only "one skill central to Disney's strategy", according to the DIS skills matrix in its own preliminary proxy statement (p. 14). That skill, "360 Degree Brand Activation", seems to entail expanding DIS brands beyond entertainment and through multiple channels. We question how a former public servant and diplomat (Froman) and former banker (Lagomasino) fit that description.

UPC demands activists identify specific candidates to oppose, rather than relying only on shareholders to decide how to allocate votes among challengers and incumbents. It also means activists connect their nominees to their thesis, and demonstrates how those nominees will prosecute that thesis better than the identified incumbents. Now, Trian has done all this.

ANOTHER UPDATE: What's Up With Trian and Blackwells?

Programming note: You know how Matt Levine at Bloomberg complains about Elon Musk disrupting his vacations? Well, we want to write about something besides DIS-Trian-Blackwells and SBUX-SOC, and they keep finding new aspects of UPC to consider. We know, and aspire to write about something different next week.

New filings in the Trian-DIS (and Blackwells) proxy contest fill some holes, raise further questions, and reveal more interesting elements of the situation. In particular, we have preliminary proxy statements from DIS, Trian, and Blackwells and a Blackwells news release, with many terrific details:

• DIS cares not at all for Blackwells, the fund that challenged both the DIS BoD and Trian, even as Blackwells did DIS the huge favor of seriously disrupting Trian's plans. The Nominating Committee considered the three Blackwells candidates, and went beyond merely declining to include them on the DIS slate (no surprise), with a harsh critique of each:
• no "experience with large, public media and entertainment companies" (Hatkoff)
• not "an independent director under the NYSE rules" (Schell)
• "never served as a director on any company board" (Solivan).
• DIS includes the Blackwells shareholder resolution advocating its bizarre idea that DIS re-appoint any incumbents that lose their election. Even more interesting, DIS seems to want shareholders to vote on the proposal, though it has little chance of winning any support.
• DIS apparently seeks flexibility in soliciting friendly proxies - it has not set a record date or meeting date for the 2024 AGM.
• Trian did not (yet) identify the DIS incumbent directors that it plans to oppose, with some interesting strategic (literally) implications.
• Blackwells declines to identify which DIS directors it will oppose or support. Instead, it opposes all DIS (and Trian) candidates, and instead will let friendly (to Blackwells) shareholders choose which three DIS incumbents to vote against. If it indeed wants to compete in this election, then it makes a significant mistake, since the logic of elections under UPC demands an activist identify those incumbents.
• DIS appears to take Trian much more seriously than Blackwells. DIS and Trian have spent over a year in constant dialogue and debate, with frequent meetings, calls, letters, and email messages among Nelson Peltz, Bob Iger, and many others. Blackwells evidently began its project with a news release on November 30, with routine correspondence including a nomination notice since then. It had "numerous" calls and email messages in December and January, but does not appear to have had a single substantive discussion with DIS. Blackwells pleas with DIS to "promptly meet" with its nominees, which seems unlikely.
• This will likely become the most expensive proxy contest ever. Trian retained two proxy solicitors, Okapi and also D.F. King, and expects to have 350 staff between them. (One year ago, Trian estimated its cost at $25 million with just Okapi and 200 staff.) Blackwells estimates its total cost at $6 million, with $1.5 million of that for its proxy solicitor, MorrowSodali, with an unknown number of staff. DIS has not yet disclosed its estimated cost.
• Proxy cards!
• DIS: white
• Trian: blue
• Blackwells: green.
• Share ownership:
• Trian: 32.4 million shares = $3.1 billion
• Blackwells: 160,000 shares = $15.2 million.

Here, we elaborate further on two of the more critical points.

Seventeen Nominees, Twelve BoD Spots

We now have a real list for shareholders to consider.

• DIS
• Mary T. Barra
• Safra A. Catz
• Amy L. Chang
• D. Jeremy Darroch
• Carolyn N. Everson
• Michael B.G. Froman
• James P. Gorman
• Robert A. Iger
• Maria Elena Lagomasino
• Calvin R. McDonald
• Mark G. Parker
• Derica W. Rice
• Trian
• Nelson Peltz
• James Rasulo
• Blackwells
• Craig Hatkoff
• Jessica Schell
• Leah Solivan

This will make quite a proxy card, along with three DIS proposals, two precatory ESG proposals, the Blackwells resolution, and for good measure, a Trian resolution that reverses any bylaw amendments that DIS has adopted after the last disclosed amendments on November 30, 2023. Their proxy solicitors have their work cut out for them.

Under the logic of UPC, activists must not only promote their candidates, but also guide shareholders to which incumbents to reject. Further, in this novel situation, Trian (and Blackwells) should help its supporters to not vote for Blackwells (and Trian) nominees.

A year ago, Trian nominated only one candidate, Nelson Peltz. It clearly identified the DIS incumbent it opposes (Froman), and began to make a persuasive case for Peltz and against Froman. Pretty straightforward.

The strategy now becomes quite complicated. Trian will identify two such incumbents, and Blackwells would identify three. So far, Trian has not named its two, and Blackwells will not name any, at least yet.

Between them they will seek to displace up to five out of twelve incumbent DIS directors, a huge lift for DIS shareholders. Trian will help shareholders with two of them. Blackwells will let shareholders decide which three to oppose. Trian will need to persuade shareholders its two candidates improve on two DIS incumbents and the three Blackwells nominees. Blackwells will need to persuade shareholders its three candidates improve on all DIS incumbents and the two Trian nominees. Yes, their proxy solicitors have a big job.

Blackwells put Trian in a huge bind: when to disclose the DIS incumbents it opposes? If it does so now, then Blackwells could identify three others, forcing shareholders to consider voting against as many as five incumbents. If Trian waits to see what Blackwells does, it loses valuable time in making its case for its candidates and against whomever it opposes. It rather depends on what Blackwells wants out of this.

If Blackwells truly seeks to compete, then it needs to up its game. Aside from its strategic errors, it muddles its communication badly. Its news release asserts only its candidates will support the DIS turnaround as the current BoD prefers to quash dissent. Meanwhile, its resolution would add back DIS incumbents (below). It slams Trian as devoid of strategic ideas and media experience. On the other hand, it ambitiously invites former DIS executive and current Trian supporter Ike Perlmutter over to Blackwells' side. It hints it wants the DIS turnaround to involve its real estate ("50% of the entire market value"), which is a Blackwells specialty, with no further ideas about what to change. Blackwells also slams the DIS-ValueAct relationship, leading to a "significant information discount", whatever that means.

If it merely seeks to disrupt Trian and deliver the contest to DIS, then it's doing a superb job.

An actual shareholder resolution

DIS also discloses Blackwells duly submitted a proposal to implement the bizarre idea that DIS reappoint any incumbent directors that lose the election at the 2024 AGM. Specifically, for any of the up-to-five directors that so lose, DIS will expand the BoD by that number and appoint those incumbents back to the BoD. Improbably, DIS could find itself with a seventeen-person BoD, including five directors that lost the election to five activist candidates.

DIS and Trian oppose this, of course. DIS does not want to increase the BoD size, and also "intends to respect the results of the election and the will of our shareholders." It does not think "...appointing the unelected directors ... would be in the best interests of shareholders." Trian thinks the BoD "should respect the will of its shareholders as expressed at the ballot box."

Also, Blackwells doesn't really know how to do this. The resolution lacks a Supporting Statement, which DIS would include in the company proxy materials. Blackwells' proxy statement provides a short, confusing rationale that makes little sense, appealing oddly to BoD "continuity".

More importantly, in addition to opposing the resolution, DIS seems to want shareholders to vote on it. We suspect DIS did not seek no-action relief from the SEC. If it did, then the SEC would have almost certainly granted it, based on Section 14a-8(i)(2), which provides an exception for proposals that violate state law. We think the proposal violates Delaware law, in that it reverses the result of a proper shareholder vote. We cannot figure out why DIS wants such a vote, though, maybe to further discredit Blackwells when the proposal goes down in flames.

UPDATE: What's Up With Trian and Blackwells?

A few weeks ago we highlighted the goings-on at DIS, after Blackwells Capital jumped into the Trian Partners proxy contest there (below). Last week, things became even nuttier, as Blackwells started its own proxy contest, and DIS announced support from another activist, ValueAct Capital.

We typically refrain from posting on individual activist situations unless they illustrate vividly one or another idea in activism. This one definitely does so, about the dynamics of multiple activists under universal proxy. It's also fascinating for what it says about Blackwells and ValueAct.

Blackwells' Bizarre Idea

Recall Blackwells dragged the Trian proxy contest, in which Trian plans to nominate two candidates, CEO Nelson Peltz and a former CFO at DIS. News accounts also reported Blackwells would nominate directors at WEN, the principal holding of Trian. Instead, this week Blackwells disclosed it would nominate three directors at ... DIS.

Blackwells also proposes DIS immediately add back to the BoD any incumbents that lose to Blackwells nominees. Finally, Blackwells released a letter asking DIS to investigate any relationship between Trian and Ancora, who announced its support for Trian a few weeks ago.

The original Blackwells move struck us as a publicity stunt, rather than a serious activist project. This current move affirms this. Earlier, Blackwells cheered DIS turnaround efforts and the "enviable" BoD. Now, it offers three new directors, and no reason why or how the three improve on those efforts.

While novel, suggesting DIS expand the BoD to re-appoint losing incumbents is just bizarre. Companies would naturally rush to do this anytime an incumbent loses to a challenger. They don't because it subverts completely shareholder intent, having just rejected those very incumbents. Disenfranchised shareholders would have a strong case against DIS in Delaware Chancery Court.

Also, note Blackwells does not propose its nominees resign in favor of incumbents (and maintain the BoD at its current size). Imagine recruiting three qualified nominees for a proxy contest, and requiring them to step down immediately if they prevail over the very directors they seek to defeat. Instead, the winning and losing directors get to serve together! Awkward...

We guess DIS already thought to look into Trian and Ancora ("Thanks! terrific idea!"). Blackwells accuses them of coordinating efforts, and suggests they violated advance notice terms of DIS bylaws and SEC disclosure rules. As for the former, we don't know what Trian included in its original or an updated nomination notice to DIS. We expect in the unlikely event they do coordinate (Trian doesn't really need Ancora), Trian would scrupuloulsy avoid cratering its efforts by hiding it. If Blackwells thinks they failed to file all this with the SEC, then as a DIS shareholder it could report it to the SEC. Notably, its letter to DIS does not mention doing so.

ValueAct's Cheap Support

The ValueAct announcement makes more sense, at least for DIS. They have known each other for some time, and evidently began collaborating in the past few months. ValueAct will vote in favor of DIS incumbents, too.

DIS crowed how ValueAct has abundant experience in media and tech and a record of "collaboration and cooperation", in pointed contrast to what is says about Trian. ValueAct has significant credibility with many DIS investors, and could deflect Trian criticism of the current turnaround efforts.

ValueAct came cheap to DIS. No BoD seat or even BoD observer role here, which it received in many similar situations. In consideration for a very public boost to DIS, ValueAct receives only confidential information that presumably will allow it to advise the DIS BoD. We expect ValueAct won't charge McKinsey-level fees.

We struggle to understand how this helps ValueAct. DIS promises to listen to advice from ValueAct, not follow it. Unlike Blackwells, ValueAct hardly needs the publicity. Perhaps in the clash of egos among leading activist investors, this grants ValueAct a bit of fleeting status relative to Trian.

ValueAct's support did irk Blackwells, though, since DIS shareholders are less inclined to support it, similar to the impact on Trian. Blackwells told Reuters the ValueAct agreement is "a disappointing defensive move ... Bringing all shareholders a real and better choice for directors is ... necessary." Thus, "if anyone is needed it's the Blackwells’ nominees," not the two from Trian.

Universal Proxy Makes It Happen

Blackwells seems to want mostly to disrupt Trian's proxy contest. It can best do so only if their three candidates appear on the same proxy card as Trian's two. Of course, this happens only under universal proxy card.

As to why Blackwells wants this, we can only speculate. With ValueAct, DIS doesn't need them, and Trian must loath them by now. This doesn't fit into any plausible thesis for Blackwells' DIS investment, and makes no sense for fundraising.

And, DIS could not have asked for a better development. They almost certainly have no interest in Blackwells or its nominees - otherwise, it would just appoint one or more of them to the current BoD. Yet, we now have a proxy contest with multiple activists, as Trian and Blackwells presumably solicit and divide the same shareholder votes. We predicted this would happen under universal proxy, although not in this unusual manner.

We see Blackwells gaining only (adverse) publicity from this effort. They can't possibly have a logical "case for change" that will persuade proxy advisors to support them, not after its glowing praise for the current BoD at DIS. They have no chance to win large investors' votes, after ValueAct announced its support.

We expect Blackwells will find itself very alone in future activist efforts. It's one thing for activists to compete at a portfolio company. Then, shareholders can decide whose thesis and BoD candidates they prefer. It's much different to actively thwart the efforts of another activist, much less one with Trian's record, reputation. and resources.

As we've noted many times before, activists almost always need the support of other shareholders. It would surprise us if after this, Blackwells can achieve that in its subsequent projects.

What's Up With Trian and Blackwells?

Occasionally two (or more) activists collide at a portfolio company. Sometimes they mostly agree, and quibble about trivial details. Other times, they have different theses for the company's direction, or divergent views about how much growth and risk the company can bear. This happened a few times in 2023 with varying success, mostly in line with previous years' experience. Also, we predicted universal proxy card would bring out more of these, which didn't really happen in 2023.

Much less frequently, one activist just goes after another. We saw that this past week, as Blackwells Capital publicly criticized Trian Partners at not one but two Trian portfolio companies, Disney (DIS) and Wendy's (WEN).

What Just Happened?

Last week, Blackwells sent a news release slamming Trian and its recent moves at DIS. ICYMI, Nelson Peltz revived Trian's earlier activist efforts at DIS, and indicated it would nominate candidates to stand for election at the 2024 AGM.

Blackwells pledges its staunch support for current DIS leadership in glowing terms, calling the current turnaround "transformative" and the BoD "enviable". It accuses Trian of "mindless, drum-beating activism." Blackwells has owned DIS since 2018, although it does not disclose how many shares.

In the release, Blackwells also accuses Trian of "nepotism" at WEN, one of Trian's oldest and biggest investments, where three Trian executives serve on the BoD. It calls WEN a "cautionary tale" for DIS shareholders.

Blackwells then evidently decided WEN deserves its own activist effort. A news report indicates Blackwells plans to nominate at least two director candidates at the next AGM. For the expected May 2024 AGM, Blackwells can submit a nomination notice by mid-Feb 2024, so it has some time to put together its plan. Blackwells also does not disclose how long it has owned WEN, or for how long.

Now, Who Is Blackwells?

CIO Jason Aintabi started Blackwells Capital in 2016. It acts larger than its apparent scale, and has several notable activist projects to its credit.

It hasn't filed a Form 13F or any recent Form 13Ds, so we don't know fund AUM or the size of the positions in its portfolio companies. Its collection of activist presentations and news releases doesn't reveal any interesting details about the fund or its team. The only Form 13D it filed, for a proxy contest at SuperValu in 2018, disclosed an investment of around $30 million then. Earlier this year it said it owns 2% of GNL, which was worth about $60 million at the time. So, it probably remains somewhere near that AUM.

It does pursue some interesting activist situations. Besides SVU, it has to its credit three successful projects at real estate companies, including at Colony Capital, whose CEO Tom Barrack was a buddy and early supporter of President Trump, and at Monmouth Real Estate Investment Corp, where he faced off against real estate luminary Sam Zell. It also pursued Peloton last year, and arguably is responsible for the CEO change there.

Alpha or Attention?

Clearly, Blackwells and Aintabi do not hesitate to confront the powerful. And, with about one project per year, the firm picks them with some care. Its presentations reveal thorough and thoughtful analysis of business and corp gov, too.

Escalating from relatively smaller companies with aging leaders to challenging Nelson Peltz and his team at DIS and WEN takes it to a new level, though. We can't see why, exactly, Blackwells would defend DIS when few other investors dare do so these days, other than to poke Peltz. Sure, WEN could probably use some shaking up after a stagnant few quarters. The likelihood of persuading other shareholders to displace Trian and its 16% ownership seems rather low.

Activists usually do well by critiquing leadership of portfolio companies, rather than other shareholders. More than a few activists merit a hard look at their process and results, and Trian can handle the same criticism.

We'll wait to see a thesis and detailed analysis of WEN, similar to how Blackwells works at other companies, and (ironically) similar to how Trian itself breaks down activist investments. Until then, at these most recent companies Blackwells appears to push for attention rather than portfolio performance.