Business

Disney may struggle to stir creative juices after fending off boardroom blitz

Studio giant had a number of box-office flops last year

Actress Rachel Zegler has been cast as Snow White in live-action remake of the Disney classic, now due for release next March. Photograph: Getty Images

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Joe Brennan
Sat Apr 6 2024 - 06:00

Disney’s long-awaited live-action remake of Snow White, originally slated for release this month, may be taking longer than expected to wrap. But the entertainment giant spared no effort getting something more pressing in the can.

The group saw off an attempted boardroom coup on Wednesday by Nelson Peltz, the billionaire activist investor and father-in-law of Brooklyn Beckham.

Disney saw through the re-election of its 12 board members as shareholders rejected, by some margin, an attempt by the 81-year-old Peltz to have himself and former Disney chief financial officer Jay Rasulo appointed to seats at the top table.

Peltz’s Trian Fund Management, best known for activism in consumer goods beasts like Unilever, Procter & Gamble, Heinz and Mondelēz, disclosed an initial stake in Disney in January, 2023, and immediately declared war

Disney spent almost $40 million (€36.9m) on its campaign to sway voters in the proxy fight.

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Peltz’s Trian Fund Management, best known for activism in consumer goods beasts like Unilever, Procter & Gamble, Heinz and Mondelēz, disclosed an initial stake in Disney in January, 2023, and immediately declared war, criticising the group’s “over-the-top” executive pay, expensive acquisitions and questionable succession planning.

Disney had only two months earlier hooked former chief executive Bob Iger back from retirement to replace his successor, Bob Chapek, who was ousted after a rocky 33-month tenure, during which the stock slid almost 30 per cent.

Peltz singled out Iger’s $71 billion purchase of 21st Century Fox (announced in 2017, completed in 2019) as “strategically flawed” and a stress on the balance sheet. Before that deal, Iger spent more than $15 billion on Pixar, home of Toy Story and Monsters Inc; Marvel Entertainment, of the Spider-Man to Avengers franchises; and Lucasfilm, best known for Star Wars and Indiana Jones.

Disney is saddled with $32 billion of net debt. And while its free cash flow ― the amount of money a company generates after running expenses and investment ― rebounded last year to $4.8 billion from $1 billion in 2022, during the pandemic, it was still half of what Disney took in before Covid.

A series of box office flops last year ― including a live-action remake of The Little Mermaid, the fifth instalment of Indiana Jones and The Marvels ― didn’t help. Disney’s studios business, which made an $800 million operating loss last year, is critical to growth in streaming (Disney+ and Hulu), theme parks, stores and licensed merchandising.

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Its film roster for this year is also lighter than usual, due to lengthy actors and writers strikes that paralysed Hollywood for much of last year. The next Star Wars movie won’t be released until 2026, seven years after the last one.

The Snow White remake was originally due to be released this month, but Disney decided in October to push it out by a year. The remake has already got on the wrong side of “anti-woke” crusaders with the casting of Rachel Zegler, a Latina actress, as the lead and a crew of racial-, gender- and height-diverse actors in the place of the seven dwarfs.

Even Igor conceded in November that Disney had become more focused on virtue signalling than storytelling during his absence, saying: “Creators lost sight of what their number one objective needed to be. We have to entertain first. It’s not about messages.”

It’s a rare point on which he and Peltz agree. The activist railed in an interview with the Financial Times last month against The Marvels and Black Panther, which portrayed female and black superheroes respectively. “Why do I have to have a Marvel that’s all women? Not that I have anything against women,” he said, “but why do I have to do that? Why can’t I have Marvels that are both? Why do I need an all-black cast?”

all shareholders have benefited from the war, according to Laura Martin, an analyst with US investment bank Needham & Company. While the stock has eased back 5% since the eve of the agm, it remains up 30% so far this year

Peltz called off his proxy fight for several months last year before restarting it again in November. His Trian spent an estimated $25 million on its campaign, while fellow activist Blackwells Capital forked out about $6 million ― making it, with Disney’s outlay included, the most expensive proxy battle of all time.

Still, all shareholders have benefited from the war, according to Laura Martin, an analyst with US investment bank Needham & Company. While the stock has eased back 5 per cent since the eve of the agm, it remains up 30 per cent so far this year.

With Peltz hovering in the background, Disney made several well-received announcements in early February. These included a hefty dividend, $3 billion share buyback, $1.5 billion investment into the developer of online video game Fortnite, and plans to launch a streaming service for its ESPN sports business through Disney+. Iger had also hiked Disney’s cost-cutting target in November and is targeting streaming break even later this year.

“We believe Trian and Blackwells have added urgency to the turnaround, but not substance,” she said, adding that the company will remain under pressure “to drive shareholder upside” even after the agm out-turn.

Others, such as Barclays analyst Kannan Venkateshwar, fear the fresh focus on costs will come back to haunt it.

“We find it ironic that Disney management is attributing its creative slump to too much content when Disney is actually producing the least amount of content among major studios and streaming services,” he said in a recent report. “Disney is a content company that simply isn’t producing enough content to expand the pie beyond its core audiences.”

Bank of America analyst Jessica Reif Ehrlich this week raised her share price target on Disney to $145, which points to 24% upside from her, saying Iger ‘now appears to be in command and control’

It may struggle to get its creative juices flowing with in-house accountants now in the ascendancy.

Bank of America analyst Jessica Reif Ehrlich this week raised her share price target on Disney to $145, which points to 24 per cent upside from her, saying Iger “now appears to be in command and control”. But he’s 73 and a huge question mark remains over what the company is doing to line up his replacement.

For Martin at Needham, there is a neat solution. “We think the best succession option for Disney is to sell itself to Apple or Amazon,” she said.

However, it would take a Republican president to garner regulatory approval for such a deal, she added.

Peltz’s 1.8 per cent stake in Disney is worth $3.9 billion. Would Donald Trump like to see him make a killing from a sale of Disney to Big Tech if he got back into power?

Peltz has flip-flopped on Trump in the past. And his recent support for his fellow Palm Beach resident ― telling the Financial Times he’s “all we got” ― is no ringing endorsement.

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