The pivotal moment for Disney's fate awaits a crucial board decision

This week, a major decision will be made regarding the future of Disney through a high-stakes shareholder vote on Wednesday. The battle over the company's direction has become one of the most expensive proxy battles ever.

The main point of contention is Disney's stock price, which has increased by almost 50% in the last six months. Despite this growth, some investors are still not satisfied and are pushing for a higher return. If activist investors win a seat on the board, they plan to make changes to the Magic Kingdom and its wide-ranging empire, spanning from animation to streaming services to theme parks.

Two slates of board seats are currently competing against Disney's. One slate is led by Trian Fund Management, which has put forward its founder Nelson Peltz, an 81-year-old billionaire corporate raider, and Jay Rasulo, a former Disney CFO. The other challenge is from Blackwells Capital, aiming for three seats.

The main challenge comes from Peltz, whose partnership with former Marvel chief Ike Perlmutter could bring significant changes to Disney if successful.

Peltz has criticized Disney’s recent theatrical flops and suggested that the company should aim for "Netflix-like margins" with its Disney+ streaming service. The activist investor and his Trian fund are pushing for aligning pay with performance for key executives, restoring Disney’s dominance in the box office, and expanding the company’s profit margin. Additionally, they want to ensure that CEO Bob Iger steps down in 2026 at the end of his contract.

However, analysts note that Peltz's plan doesn't differ significantly from what Iger and his team are already working on. The specifics of how Peltz and Rasulo would address the issues remain unclear.

What's the dispute about? According to Barton Crockett, a senior research analyst at Rosenblatt Securities, he doesn't believe that Peltz has presented a compelling plan for a turnaround that would convince people to support his involvement in making changes.

Disney has faced challenges in recent years, such as box office failures, fewer viewers on its TV networks like ESPN and ABC, and significant losses while trying to grow its streaming service to rival Netflix.

Peltz is hoping for a change in direction.

Trian expressed concerns about Disney's current direction, citing its decline from the top spot at the box office, delayed entry into streaming, and focus on linear TV. On Wednesday, we will see how Disney responds to these criticisms and what steps they plan to take moving forward.

At 1 pm ET, Disney will have its annual shareholder meeting. Shareholders will be submitting their votes for the "slates" of board member positions, which include representatives from Trian and Blackwells. The results of the ongoing vote will be revealed during the meeting.

If Peltz is successful, he and Rasulo could potentially secure up to two seats on the board. This would mean displacing Disney's chosen members. With these positions, the pair could have a significant influence on the company's direction. Some analysts even speculate that this could lead to an early departure for Iger, who took back the leadership role in 2022 after his chosen successor, Bob Chapek, was removed.

Peltz, who lacks entertainment industry experience but has a track record of successful proxy battles, expressed his desire in interviews to collaborate with the current leadership in order to bring change to the media giant.

In a video on Trian's website for the proxy battle, Peltz emphasized the importance of ensuring that the company starts performing well. He believes that the company has been mistreated for a long time and it is time for that to change.

How is Disney fighting back?

Typically, shareholder meetings and these votes are staid affairs that barely garner significant attention from the public.

Disney is taking the threat seriously, investing over $60 million in the boardroom fight to support Iger and the current board. They are determined to keep Iger and the board members in their positions. Disney and its supporters believe that positive changes are already underway with Iger at the helm. The Trian proxy battle is believed to be influenced, at least in part, by a personal grudge stemming from Perlmutter's departure from the company last year.

Disney faces a unique challenge in persuading shareholders. Unlike other publicly traded companies, many of its investors are everyday individuals known as "retail investors" who invest in companies.

These individual investors hold more than 35% of Disney's shares, giving them significant influence over the vote. To address this, Disney has approached the campaign like a political one. They have launched a campaign website, placed Google search ads, and advertised on popular podcasts such as "Smartless." Additionally, Disney is leveraging its well-known animated characters to help sway the vote.

Crockett mentioned that the company has gone all out in their response to Nelson Peltz and other activists, going as far as using Disney intellectual property and referring to Peltz as 'Pinocchio'.

In addition, characters from the movie "Frozen", Anna and Elsa, have been featured on shareholder materials, along with the lesser-known character Ludwig Von Drake who hosted a video explaining the voting process for shareholders.

Disney is confident in its strategy to drive growth and create value for shareholders. The company has been making significant progress towards its goals of increasing efficiency and effectiveness. This includes focusing on key brands and franchises, cutting costs, and reinstating dividends, according to a recent statement advocating for its board members.

Additionally, CEO Bob Iger and other top Disney executives have been personally meeting with large institutional shareholders across the country, as reported by CNN.

Disney has gathered support from notable figures for its board, including filmmaker George Lucas, JPMorgan Chase chief Jamie Dimon, former Disney CEO Michael Eisner, and billionaire philanthropist Laurene Powell Jobs. Even some Disney family members, such as Abigail E. Disney, who have criticized the company, have spoken out against Peltz's boardroom battle.

According to Jessica Reif Ehrlich, managing director of BofA Securities, Disney's CEO Bob Iger and the board have taken the situation seriously. They have provided a significant amount of information and have engaged with investors. The conflict with Nelson Peltz has become very public and contentious.

Recently, Peltz has gained support from the California Public Employees Retirement System (CalPERS) and the private investment firm Neuberger Berman, which has posed a challenge to Disney's attempts to avoid a board battle. Additionally, influential advisory firms like Institutional Shareholder Service and Egan-Jones have also backed Peltz for at least one board seat.

However, Disney is not taking any chances. Some analysts have suggested that if Peltz does secure a seat or two on the board, it could potentially accelerate the departure of Iger from Disney before his planned succession in 2026.

Crocket mentioned that Iger seems to avoid interacting with Peltz. He wonders if Peltz winning could lead to Iger leaving, not due to operational reasons, but from a leadership standpoint.

CNN’s Liam Reilly and Krystal Hur helped with this report.

Editor's P/S:

The upcoming high-stakes shareholder vote at Disney on Wednesday holds significant implications for the entertainment giant's future. The battle between Disney and activist investors, led by Nelson Peltz, has escalated into one of the most expensive proxy battles in history. Peltz's aim to secure board seats and push for changes, including a "Netflix-like margin" for Disney+, aligns with concerns about the company's recent underperformance in the box office and streaming sector. However, analysts question the specifics of his plan and note that Disney is already implementing similar strategies.

Disney, on the other hand, has mounted a formidable defense, investing heavily in a campaign to support its current leadership. They have engaged in a multifaceted outreach to shareholders, leveraging their iconic characters and rallying influential figures to their side. The company emphasizes its progress in driving efficiency and growth, while acknowledging challenges in areas like live sports viewership. The outcome of the shareholder vote will have a profound impact on Disney's direction, potentially shaping the company's leadership, strategies, and long-term prospects.