February 1, 2024
Dear Fellow
Walt Disney Company Shareholder:
The Trian Group1 owns more than $3 billion of shares of The Walt Disney Company.
Like you, we are enthusiastic owners of this iconic company because we believe Disney is the leading media and entertainment business, with outstanding assets:
- Beloved franchises like Star Wars and Marvel;
- Disney and Pixar Animation Studios, which produced some of the greatest films of all time;
- Theme parks and cruise lines that attract millions of people from around the world each year; and
- Disney+, an emerging streaming giant with a library of enviable content.
Disney occupies a unique place in the hearts of millions of people with its deep history of captivating stories while creating unforgettable experiences.
Despite Disney’s enviable and unique position in media and entertainment, its stock price is half what it was less than three years ago and
Disney shareholders – like you and us – have collectively lost nearly $200 billion of our investment in that time.2 Disney’s recent creative efforts have disappointed its once-loyal customer base and have caused losses for shareholders. Disney was forced to cut its dividend and only recently restored it3 – meanwhile shareholders missed out on more than $12 billion in expected distributions between 2020 and 2023.4
Disney’s stock is down over the last one, three and five years. In fact, over those time periods, Disney’s total shareholder return (“TSR”) has significantly underperformed the stocks of other media and entertainment companies, despite Disney’s superior assets, capabilities and businesses. Disney’s TSR has underperformed the S&P 500 by a wide margin over each of those time periods, too.5
One year ago, three years ago, five years ago or ten years ago,
you would have been far better served investing in an index fund like the S&P 500, or in a basket of Disney’s self-selected peers, than in Disney itself.6 Instead, you, like us, have been caught in the Disney mousetrap.
With so many powerful competitive advantages, why has Disney cost shareholders so much?
The simple answer:
Disney has lost its way!
- The Company’s creative engine has stalled. For the first time in nearly a decade, Disney has lost its position as the highest-grossing movie studio.7 Disney’s last five films have collectively cost over $1 billion to produce, and yet two of those films have lost money, and another barely eked out a profit.8 Disney’s reputation as the world’s preeminent entertainment company – and the flywheel that drives its business – is at risk.
- Disney+, the emerging streaming business, has been poorly managed. Since the service was launched in 2019, Disney+ has failed to achieve profitability in any fiscal year. And while Netflix generates attractive profits, margins and cash flow from its streaming service, success at Disney+ has been elusive. Today, Netflix generates approximately 21 cents of profit for every dollar of revenue; in its 2023 fiscal year, Disney lost approximately 14 cents for every dollar of streaming revenue.9 In total, the streaming businesses have cost the Company more than $14 billion in operating losses over the last six years.10
- ESPN is challenged and lacks a clear strategy. ESPN is one of the most respected brands in sports media, but the once-lucrative business has suffered as cord-cutting has accelerated and sports rights costs have dramatically increased. ESPN has continued to shed subscribers, and investments into the direct-to-consumer app appear to lack clear return targets and payback is uncertain. Operating income for Disney’s Sports segment, which includes ESPN, dramatically declined in 2023.11
- Prices have gone up in the Parks even as investment has been deferred. Disney’s parks have long been a crown jewel of the Company and remain an important part of its future. But even though admission prices have increased by more than 35% over the last ten years,12 Disney recently revealed the need to invest a whopping $60 billion into its parks and cruise lines over the next ten years, seemingly to catch up for delayed or deferred investment.13 Disney has failed to answer how it plans to compete with Universal’s new attractions, why it has not kept pace with development, how and where this money will be spent, or what returns shareholders can expect to earn on this massive investment.
As a result of these and other issues, and despite spending $200 billion since 2018 on assets and acquisitions (such as the purchase of 21st Century Fox), Disney’s financial performance has suffered. Operating income, free cash flow and earnings per share have declined by 18%, 50% and 85%, respectively, since 2018.14
In our view, Disney’s strategic missteps and declining financial performance can be laid at the feet of its Board, which we believe lacks focus, alignment and accountability.
- Lack of Focus: Many of Disney’s directors have important day jobs running some of the largest automobile, apparel, sporting goods and software companies in the world. They have demanding, full-time work commitments and are likely waking up every day thinking about things other than Disney. Faced with complicated challenges in their executive roles, we believe these busy directors have taken their “eyes off the ball” at Disney.
- Lack of Alignment: Disney’s non-management directors have amassed great personal wealth, having received in the aggregate more than $700 million in compensation from their jobs at companies other than Disney during their tenures on the Disney Board.15 Yet, despite their significant resources and sizable investment portfolios, Disney’s eleven non-management directors appear to have so little faith in Disney’s future that they have purchased a total of less than $350,000 of Disney stock during their tenures. Nine of them have never bought a single share!16 Relative to their wealth, they have almost no skin in the game. Meanwhile, Disney’s CEO, Bob Iger, has sold nearly all of his Disney stock, reaping proceeds in cash of more than $1 billion; today, he is left owning comparatively few shares.17
- Lack of Accountability: Despite years of Disney underperformance and shareholder discontent that has been repeatedly expressed at Disney’s annual shareholder meeting votes,18 the Board continues to claim it knows best, refusing to heed input from shareholders or add shareholder-selected directors to the Board who can bring fresh perspectives to Disney’s challenges.
We do not believe the current Board can solve Disney’s problems. To
Restore the Magic, we need new perspectives, fresh thinking and tangible goals. We certainly do not expect this same Board that has sat idle, watching Disney’s decline, to suddenly change and have the drive to
fix Disney.So, to ensure a better future for this great company, we, its owners, must act!
We are therefore asking you to elect two new, independent directors –
Nelson Peltz and Jay Rasulo – to Disney’s Board of Directors.
- Nelson Peltz beneficially owns more than $3 billion of Disney stock.19 He is one of the most experienced directors in corporate America, having served on more than a dozen public company boards, including world-class companies and household names like Procter & Gamble, Unilever, Wendy’s, H. J. Heinz and Mondelēz. During his tenure on these and other boards, he has helped create tremendous value for shareholders and drive important initiatives including leadership succession, management compensation realignment, organizational improvements and operational turnarounds.20
- Jay Rasulo beneficially owns more than $600,000 of Disney stock. He is a Disney veteran who spent three decades at the Company in a variety of roles, including five years as Chief Financial Officer. During his tenure as CFO, Disney’s stock price increased by more than 250% and the Company paid more than $8 billion in dividends to shareholders.21 Prior to being appointed Chief Financial Officer, Mr. Rasulo ran Disney’s Parks and Resorts business, during which time the Parks and Resorts division delivered consistent revenue and operating income growth.
Real change is needed! There is much to be done to revive Disney, delight consumers again and drive value for its owners.
Disney’s current directors do not want our candidates inside the board room. Perhaps they do not want the hard questions and focus on shareholder value. The Disney Board is seeking to exclude them and appease shareholders with its own appointments, adding two new, hand-selected directors that were chosen without shareholder input. You should be wary of cosmetic “change” orchestrated by the same directors who have consistently failed shareholders.
If elected, Nelson Peltz and Jay Rasulo will seek to work diligently and collaboratively with the other Disney directors and management to:
- Initiate a Board-led review of the Company’s creative processes and structure so that Disney can once again claim its #1 position at the box office while consistently delivering industry-leading content and Disney hallmarks;
- Insist that management finally develop and implement an executable plan for the streaming business in order to achieve Netflix-like levels of profitability;
- Have the leadership team commit to a detailed plan that includes a reasonable payback period and return profile for all future investments in the direct-to-consumer ESPN business;
- Press management to disclose the expected returns on the $60 billion of announced investments in the Parks and Experiences business;
- Align pay and performance for the Company’s senior leaders by tying compensation to clear, measurable and ambitious goals; and
- Finally execute a successful CEO succession process, while cultivating a deep bench of capable, next-generation leaders.
We encourage you to
vote “FOR” Nelson Peltz and Jay Rasulo using the instructions on the enclosed BLUE proxy card to enable them to pursue this ambitious agenda.
To make room for Nelson Peltz and Jay Rasulo on the Board, you also need to “WITHHOLD” your vote on two of the Board’s current directors. We are strongly recommending shareholders “WITHHOLD” on incumbent directors Michael Froman and Maria Elena Lagomasino.
- “WITHHOLD” on Michael B.G. Froman. Apart from his wife’s long personal relationship with the wife of Disney CEO Bob Iger,22 it is unclear to us why Mr. Froman – who has spent much of the past 25 years of his career as a financial executive, a federal trade representative and a national security advisor – was appointed to the Board. It appears that Disney is equally mystified: by the Company’s own admission, Mr. Froman possesses just one skill that is central to Disney’s strategy.23 Mr. Froman has never served on another public company board. He also does not appear to believe in Disney’s future the way we all do: throughout his tenure as a director, he has never bought even a single share of Disney stock with his own money.
- “WITHHOLD” on Maria Elena Lagomasino. Ms. Lagomasino has Chaired Disney’s Compensation Committee since 2019 and has been a member of that Committee since 2015. During her tenure on the Compensation Committee, Ms. Lagomasino has overseen payments of over $800 million to Disney’s executives24 while shareholders have suffered, with Disney’s stock losing nearly 20% of its value and your dividend being significantly reduced.25 Among other things, Ms. Lagomasino oversaw the awarding of a four-year compensation package to CEO Bob Iger valued at more than $250 million26 in connection with the value-destructive, but Board endorsed (and unanimously approved), 21stCentury Fox acquisition. Furthermore, Ms. Lagomasino’s background in wealth management appears unrelated to any of Disney’s businesses and, like Mr. Froman, Ms. Lagomasino possesses just one skill that is central to Disney’s strategy, according to Disney’s own analysis.27
We are also asking that you
“WITHHOLD” your vote on the three candidates nominated by Blackwells Capital LLC.
Together, we can
Restore the Magic at Disney!
Vote using the enclosed
BLUE proxy card.
About Trian Fund Management, L.P.
Founded in 2005, Trian Fund Management, L.P. (“Trian”) is a multi-billion dollar investment management firm. Trian is a highly engaged shareowner that combines concentrated public equity ownership with operational expertise. Leveraging the 40+ years’ operating experience of our Founding Partners, Nelson Peltz and Peter May, Trian seeks to invest in high quality but undervalued and underperforming public companies and to work collaboratively with management teams and boards to help companies execute operational and strategic initiatives designed to drive long-term sustainable earnings growth for the benefit of all stakeholders.
deadline.com
forums.wdwmagic.com
www.wdwmagic.com
