During last January’s episode of the drama “Activist Investor Nelson Peltz vs. Disney,” we exposed Peltz’s embarrassing record of poor investment performance. Peltz abandoned his activist campaign against Disney soon after, with Disney CEO Bob Iger vowing to cut costs in his first earnings call of the year.
Since then, challenges have piled up for Disney, with shares falling to 2014 lows amid a summer of bad press for Iger. Perhaps smelling weakness, Peltz is now ordering a sequel and opportunistically threatening another activist campaign against Iger.
But the winds may change again. Peltz is facing the slow drip of one embarrassing revelation after another, while Disney may be turning a corner. The performance of a true Hollywood magician seems to leave the financial rival behind with his antics in smoke and mirrors.
Peltz puts his mouth where someone else’s money is
Just last week, Peltz’s ownership stake in Disney turned out to be largely fictitious, as he does not actually own the number of Disney shares initially suggested. Instead, most of the “Peltz stock” is owned by Iger’s longtime foe Ike Perlmutter, who was unceremoniously fired from Disney-owned Marvel Entertainment as part of cost-cutting measures. Perlmutter was already in cahoots with Peltz unofficially during Part I anyway, so formalizing their co-conspiracy adds nothing new, and Peltz hardly enters Part II with much of a new look in the game. Nothing inspires trust like putting your mouth where someone else’s money is.
Given Peltz’s ability to handle Tinseltown illusions, it’s a shame he turned to finance instead of show business. There’s no denying that his antics are getting attention, as his entertainment genius outweighs his investment performance. Specifically, when we updated our original January analysis with data through November 2023, we found that the underperformance of companies on whose board Peltz had become somehow worse. Our original analysis can be viewed by clicking here.
No victories for Trian
As owners of Disney, we are strictly discouraged from entrusting our shares to Peltz’s control. The stock of every company that currently has Nelson Peltz on the board — Wendy’s, Unilever, and Madison Square Garden Sports — has significantly underperformed the S&P 500 over Peltz’s entire tenure by an average of 6% annually, representing billions of dollars in lost shareholder wealth, This poor performance has worsened since our first analysis in January. Obviously, having Peltz on your board seems more value destroying than value adding.
We reached out to Peltz with our latest findings, which he read, but even a few days later, we still haven’t heard back.
However, Peltz believes he can add value to Disney’s board of directors. Rumor has it that the activist investor will publish a report laying out his own case in short order, and he will almost certainly present his stint on the P&G board (which ended in 2021) as a model of success amidst a lot of self-constructed propaganda supported by armies of hired PR men and friendly journalists. . However, the reality is that the majority of companies that Peltz has been on have underperformed the S&P during Peltz’s entire board term, with at least seven examples of significant underperformance, we reveal, and at least 11 examples of significant underperformance if we count companies without a Peltz Trian representative on the board, including companies as diverse as Mondelez, Sysco, Janus Henderson, Legg Mason, GE, BNY Mellon, and Family Dollar. Clearly, Peltz’s performing genius doesn’t always translate into financial results.
Even in the anomalies in which Peltz succeeds financially, such as his 50% stake in Pepsi while Indra Nooyi was CEO, the companies often succeeded in spite of his free advice, not because of it. Fortunately his advice to spin off Frito-Lay and merge it with Mondelez was ignored. Having sparred with Peltz for decades across many high-profile proxy fights, I know this was not an isolated event.
And you, Ed?
These investment performance problems are not unique to Peltz. In a candid interview with CNBC, when asked by David Faber about activists’ overall underperformance of the S&P 500, which we revealed earlier this year, Ed Garden, Peltz’s brother-in-law and Trian co-founder and former chief investment officer (until July), admitted, Easily activists have struggled and need to “find new ways to add value.”
What sets Peltz apart is the constellation of disgruntled former Disney employees who have flocked to his side, including — but not limited to — Perlmutter. Peltz’s campaign against Disney reeks of a personal vendetta against Iger rather than a compelling strategic vision for value creation.
Turn Disney around
Sure, Iger may have gotten off to a slow start in his second term in office, but Peltz’s campaign is feeding perfectly into the cynical narrative surrounding the popular Disney CEO, fueled by constant leaks to resilient journalists.
Although Iger was only in office for one year, some have already declared that he has failed in his return and should be replaced. These fringe critics forget that returning CEOs often need more than two to three years to turn their businesses around. For example, a year after Howard Schultz returned as CEO, Starbucks stock fell 48.5%, but three years later it rose 63%. Likewise, in the first year after Michael Dell returned to Dell in 2007, the stock fell 17.3% but then tripled in value. Even the legendary Steve Jobs took three years after his return in 1997 for Apple’s stock price to rise by 400%. Iger’s past record of 600% total shareholder returns suggests he deserves a much longer term.
In fact, a year into his helm, Iger appears to be on the cusp of taking off as his strategic vision for Disney finally comes into sharper focus. After a year spent fixing the numerous problems he inherited from his predecessor and evaluating options, Iger is now focused on building for the future and increasing profitability.
With Disney reporting earnings this week, Wall Street analysts are bullish with almost universal “buy” ratings. Morgan Stanley and JPMorgan praised Iger’s focus on increasing streaming profitability, growth in theme parks, and cannibalizing the content pipeline while resisting selling off linear assets too cheaply. “Invest in magic,” Bank of America advises.
Iger is transforming Disney’s business while simultaneously growing the dream team for his strategic intellectual trust. His kitchen cabinet includes potential successors, from in-house newcomers like Dana Walden, Alan Bergman, Josh D’Amaro, and Jimmy Pitaro, to returning Disney veterans like Tom Staggs and Kevin Mayer. The showdown between Disney and Florida Governor Ron DeSantis appears to be headed toward another win for Iger with DeSantis falling sharply in the polls. Obviously if you’re investing a dollar in Disney or DeSantis, Disney is a much better bet.
Earlier this year, when Iger revealed compelling plans during Disney’s first-quarter earnings call, Peltz had the good sense to call off his activist campaign within minutes during a live CNBC broadcast of a made-for-TV moment. But not every good show needs a sequel. If The Wizard of the Magic Kingdom pulls another rabbit out of the hat, it might be best for everyone to cancel the sequel before production gets too far along. If not, Peltz will be suspended from the ballot box by proxy as a dishonest fraud.
Jeffrey Sonnenfeld is the Leicester Crown Professor of Management Practice and senior associate dean at the Yale School of Management. He was named “Management Professor of the Year” by Poets & Quants magazine.
Stephen Tian is director of research at the Yale Institute for Executive Leadership and a former quantitative investment analyst at the Rockefeller Family Office.
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