Peltz loses at Disney but his investors win; changes may still be ahead
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[April 04, 2024] By
Svea Herbst-Bayliss
NEW YORK (Reuters) -Billionaire investor Nelson Peltz lost but he also
won.
Hours after shareholders voted to keep the octogenarian hedge fund
manager off the board at Walt Disney, ending the year's most expensive
and closely watched board room fight, there are few signs the defeat
will hurt him or his business.
"I don't think this means anything for Nelson Peltz," said Ken Squire,
the founder of research firm 13D Monitor which tracks activists. "He was
never the favorite to win a proxy fight at Disney going up against
(Disney CEO) Bob Iger."
With a personal net worth of $1.7 billion and a firm that oversees $10
billion in assets and has several winning bets in the portfolio this
year, the 81-year-old manager is finding the silver lining in the loss,
according to lawyers, bankers and industry analysts.
Peltz's Trian Fund Management owns more than $3.5 billion in Disney
common stock, making it the fifth-largest investor in the entertainment
conglomerate. Peltz said in a statement on Wednesday that Disney had
announced new operating initiatives and capital improvement plans since
he launched a new round of criticism in October.
The outcome has been positive, he added, noting that Disney's stock is
up roughly 50% since October, when his firm began to re-engage with
Disney, and is the best performer on the Dow Jones Industrial Average
this year.
For his own investors at Trian, Peltz is delivering what they care about
most - returns.
DISNEY GAINS FUEL TRIAN RETURNS
Disney is among several winners in the Trian portfolio this year. Others
include Allstate, which has gained 20% since January, British plumbing
and heating products distributor Ferguson PLC, which is up 15% this year
and food distributor Sysco, which has gained 8%, people familiar with
the portfolio said.
In the first three months of 2024, Trian returned close to 10%,
according to an investor. In the first two months of the year, the
broader hedge fund industry gained 2.7% and the average activist
investor was up 3.15%, according to Hedge Fund Research data.
While Disney's stock price is still far below its March 2021 peak, it
has climbed 32% since January as Disney reinvigorates its film and
television franchises and works to make its streaming business
profitable.
Trian earned a profit of about $300 million on its 16-month investment
in Disney, most of it on paper, after investing $800 million in 2022,
the Wall Street Journal reported, citing people familiar with the
matter.
Peltz is claiming, some investors say rightly, that he forced the home
of Mickey Mouse to speed up its transformation ever since Iger returned
from retirement in November 2022 to take the helm for a second time.
[to top of second column] |
Nelson Peltz founding partner of Trian Fund Management LP. speak at
the WSJD Live conference in Laguna Beach, California October 25,
2016. REUTERS/Mike Blake/File Photo
Activist investors like Peltz sometimes take credit when a company
makes changes that were already under way before they showed up. But
when they reap the benefits of a rising share price, investors are
happy regardless of the outcome of a proxy contest, investors and
lawyers said.
LESSONS FOR NEW PLAYBOOK
Peltz has waged only four fights since launching the firm in 2005
and win or lose, he has continued to take on new targets
successfully. After Peltz lost his fight at DuPont in 2015, the
chemical company's CEO left within the year, paving the way for
Peltz to forge strong relations with the new CEO.
At Procter & Gamble in 2017, Peltz eventually joined the board and
buried the hatchet with the chief executive, showing how activists
and management can work collaboratively.
Similarly, other activists who lost proxy contests, including Bill
Ackman at Automatic Data Processing in 2017, pursued other
investments and thrived. Ackman returned an average 31% over the
last five years.
The Disney fight may offer lessons to a new crop of less prominent
activists. After activists had strong returns in 2023, many
investors are ready to allocate more capital to the strategy and
newcomers want a piece of that. But industry experts cautioned that
the old-style playbook may no longer work.
The cult of personality is fading and lawyers and investors warn
that the once popular practice of putting a hedge fund's well known
principal on a slate to win board seats is no longer a surefire path
to victory.
Peltz is among the best known investors around but when both
Vanguard and BlackRock failed to endorse him for a seat at Disney,
it suggested that activists may have to find industry experts to run
as candidates on their slates.
The activists "will have to think about how they articulate their
strategic premise so that it resonates better with passive
investors," said Lyndon Park, who advises boards and management
teams as head of ICR Shareholder Advisory.
At Disney, Peltz's message was that the company had lost its
creative spark and bungled succession planning. But several
investors said they wanted to see some strategic ideas from Peltz
about how to make the company better.
"Nobody is bigger than the market and activists will have to
adjust," ICR's Park said.
(Reporting by Svea Herbst-Bayliss in New York, additional reporting
by Akash Sriram in Bengaluru;Editing by Matthew Lewis)
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