Welcome back everyone. We have a little bit of a drama
alert. Remember, just last week,
someone named Nelson Peltz, an activist investor took a steak
and Disney and then he released this big slide deck
presentation. Now, I went through the entire
thing, the slide deck presentation was a scathing
rebuke of Disney's management. It went through detail.
After detail of where Disney has has really just gone wrong and
it has so much data in it. It's an extensive study on
Disney. I think it's a great piece of
research. And we went over the entire
thing that slide deck presentation painted, a very
negative outlook for Disney. A lot of people in the comments
said, wow, I don't even know if I want to hold Disney stock
after reading that. Well, we have an update, Disney
has officially responded to the Nelson.
Peltz, accusations and Analysis and it is a spicy response.
I can tell that Disney viewed this as a little bit of a mic
drop moment, where they're they're Punching back hard.
Now, they did this in an SEC filing.
It's called the current Disney board is a right for the
shareholders January. 17th 2023. That is today.
So we're going to go through this presentation will look at
Disney's response. I'll go through Page by Page and
tell you where I think Disney has it, right?
And where I think they're making valid claims, as well as where I
think they're dead wrong, because Disney says, a lot of
things that I think are frankly, laughable in this presentation.
So, let's go ahead and Jump Right In.
We have the first slide here. The current board is the right.
And for Disney shareholders, why did they start with this?
Well, the board obviously took this personal because Nelson
Peltz, his big criticism is basically the board doesn't know
what they're doing. They're doing a poor job.
They're not getting returns for the shareholders while they're
simultaneously rewarding themselves with excessive
compensation. That was a lot of the criticism
which I agree with I think Nelson Peltz in his
presentation. Highlighted a lot of very valid
criticisms Buzz. Go ahead and look at the
response here. They say independent highly.
Qualified board has provided strong oversight focused on
delivering Superior. Sustained shareholder value.
Lots of Buzz words they're highly qualified.
Delivering Superior sustained, shareholder value, lots of
words. What I want to get to is the
actual data, they say, Disney board, regularly reviews, and is
heavily involved in setting the Strategic direction of the
company. Okay.
Definitely navigated the pandemic and oversaw launch to
direct-to-consumer platforms and pivoted from startup phase to
focus on profitability. They acted decisively to address
leadership challenge as it emerge.
Isn't this an interesting way to phrase this Disney staying here?
Look, we had this this leadership challenge and we
acted super decisively to fix the problem.
Okay, the problem was Disney that you put Bob capex, someone
who had no experience in In media in front of the biggest
media company in the world is CEO and then you, you stated
that, you had full confidence in him.
Only six months before, firing him in the dead of night, that's
you addressing the leadership challenge, you created The
Challenge, Disney's, the one that actually caused this
challenge, it wasn't thrust upon them, they created it out of
thin air because they didn't have any type of succession
plan. So Disney's version of saying
that we're addressing challenges is we're creating big problems.
Then we're trying to fix the big problems that we just previously
created. That's Disney addressing
challenges. Anyways, they go over right
here, the new people, they hired and their experience and all
their credentials. One of them that worked at Nike,
right? And they try to list how great
they are. And then what Disney does here
is the outline, basically the four different things that
they're working on right now. And again, these are just words,
they don't have any real data or anything specific, but they
basically say that they're reorganizing the leadership
structure. They're trying to become more
cost efficient and streamlined. Aligning their operations,
they're prioritizing streaming profitability, you know, in
addition to subscriber growth. But the big focus is on
profitability and they're improving the guest experience
by providing more value and flexibility.
So again nice platitudes nice words but there's no actual
specifics and any of this. Now in this next section, Disney
tries to highlight the differences between Nelson Peltz
and their own leadership team and they basically say that
Nelson Peltz has no clue what he's doing.
He's just some Investor that has no experience Nelson.
Peltz does not understand Disney's business and lacks the
skills and experience to assist the board and delivering
shareholder value in a rapidly shifting media ecosystem.
Okay? So Nelson Peltz has no clue what
he's talking about but our people, they have experience
they know what they're talking about.
That's the message here. Bob Iger, the current CEO of
Disney has created significant value for Disney shareholders as
CEO and they highlight the time during his tenure.
And Disney tries to paint it. Like, Bob Iger has done
fantastic as CEO because since 2005, when he started to 2020,
they have five hundred fifty four percent returns here, you
can see the chart right there. Five hundred fifty four percent
while the S&P 500 has two hundred and forty four percent.
So Disney outperform the index over that time period.
But here's what Disney conveniently leaves out.
What this comparison Bob Iger left Disney literally right
before covid. Like right as covid-19.
Starting, that's when he's like I'm bailing.
So basically Bob iger's seeing the the iceberg and he's on the
Titanic, and he's like, there's a big Iceberg there.
You know what I'm retiring? I'm going to just retire right
now. There's an iceberg coming.
So he jumps off the ship, right? Is this ship is sinking.
So Bob Iger bails out right here and then Disney stock price gets
completely crushed because of covid.
And the big point that Nelson Peltz made with his criticism is
that Bob Iger, never really left.
He was still the chairman, he was still involved in the day.
A two-day of Disney. So I find it very convenient and
misleading. That Disney says that Bob Iger
was done with the company right here.
When Bob Iger, is the one that put into place.
All of these plans, he's the one that bought the fox asset.
He's the one that put in, place the streaming services.
He should own the performance of the stock after this.
Not Bob capek, they threw it to Bob capek right before, covid
happen. And then, even after that, Bob
Iger was still in control saying that he was helping get the
company through the tough times of And if we look at the
performance that doesn't end right before 2020, the stock
price crumbled, all those excess gains went away.
And Disney is now, well, below the S&P 500 since the beginning
of Bob, iger's, tenure, I think them cutting off their
performance right before he steps out, even though he still
the chairman and largely influencing the company is
highly misleading. So this is Disney's idea of
measuring success basically just stop the stock chart as soon as
the company's stock price starts to go.
Down. And then talk about how good
your performance was before then and then compared to other
companies. Again with the same timeline,
Disney did great if you stop the stock price right before covid.
If you erase the past three years, of course they did good.
All the challenges happened after covid.
Once they really started to dive into streaming, that's when they
started to underperform all of their peers.
So all of this is just it's nonsense.
They're not even comparing the total time line of the company.
Now, moving on, they highlight the achievements of Baba is Or
during his CEO position. And again this is the incredibly
I think convenient and misleading timeline of Bob,
iger's CEO position. He left the CEO position,
February 25th of 20, 20 days before the pandemic hit.
So Disneys, conveniently honing in on Bob, iger's, tenure as
CEO. When Bob Iger really never left
at all. He was the executive chairman
and he was still doing day-to-day work at Disney.
He was still involved in the company, so I think That this is
incredibly misleading to focus in on this timeline.
Now, they mentioned that the market cap 5x under his
leadership. I think that's great.
He grew the company, but I also would be careful.
A lot of investors, don't realize that market caps of
companies can grow without the investor getting returns from
it. For example, if a company grows
the market cap by double by buying another company through a
highly dilute of acquisition, that'll grow the market cap of
the company, but the investors since their diluted, they own a
smaller Senator of the bigger company, they actually didn't
get any returns. So I wouldn't just think that
growing a market cap is the end goal, because a lot of times
that doesn't highly correlated with returns long term, track
record of value, enhancing merger and acquisition deals.
This I agree with Pixar Marvel. Lucasfilm, I think we're
fantastic Acquisitions. I'm very on the fence about the
21st Century, Fox deal. I don't personally right now
think that was a good acquisition and then they
highlight all the capital, they're returning to
shareholders. 89 billion dollars of capital return to
shareholders. 66 of it through share BuyBacks and twenty three
billion through dividends and they show year by year.
The billions of dollars are returning to shareholders.
This can also be highly misleading because a lot of
times what companies do is they highlight how many BuyBacks
they're doing, but they don't highlight how much dilution
they're doing. For example, we can look at
Disney on quatrain sites and this tool is available to all
Patron members. You can try it out with the link
in the description below, but we can bring up the shares
outstanding. This shows whether or not
they're really returning Capital back to the shareholder.
And what we see is that right here is when it started 2006.
This is Bob, iger's tenure. So, he did start doing BuyBacks
and the company was reducing the shares outstanding for years
returning, Capital back to the shareholders.
But then what did they do? They purchased 21st Century Fox
and they also not only diluted the shareholder, but they added
on a bunch of debt that brings you right back to where the
company was at. And 10.
So really Disney hasn't Shrunk the share count at all.
Since 2010, the company has the same amount of shares
outstanding and even more recently, the share count is
going up. It's on a steady Trend upwards
and the dividend has been scrapped.
So since 2020, they haven't returned any Capital either
through BuyBacks or dividends to the shareholders zilch.
But again, what they're doing here is they're highlighting
only during Bob iger's tenure pretending like he wasn't
involved in the company at all from 2020 to 2025.
Three. Now, again, this whole premise,
everything Disney's doing where they're honing in on, just the
timeline right before 2020. Is so disingenuous, it's so
dishonest because during that time period, two years ago, Bob
Iger Wanted full credit for running the company through
covid. Disney's Bob Iger stays on to
steer the company during the covid-19 crisis.
He actually went on to a New York Times interview to take
full credit of navigating the company through the covid
crisis. Quote, a crisis of This
magnitude and its impact on Disney would necessarily result
in me actively helping Bob, and the company contend with it.
I agree told the New York Times, this was March of 2020.
So during covid, Bob Iger was saying that he was in control
steering, the company, taking credit for it, in the New York
Times. And then, in this presentation,
they just leave that out. This had nothing to do with Bob.
Iger, this is all Bob capex fault.
I think that's very disingenuous and misleading from Disney.
Now they go on to highlight all the amazing deals at Bob Iger
did And credit where credit is due.
These are amazing deals. Baba hiker did an incredible
spree of Acquisitions. He purchased Pixar, Marvel,
lucasfilm, and these companies that he purchased, they printed
money above the cost of purchase.
So he does have a lot to back up his tenure, in terms of his
Acquisitions. I think that's a very strong
point in his history. I would highlight that too, and
I don't think there's anything dishonest with this part of the
presentation. I think that this should be
something Disney response with now.
Moving on, to the new Deal the fox transaction they say it was
critical to better position. Disney to address key secular
shifts in the media sector. This is where I'm unsure about
this deal. I don't know about the fox deal.
They say that it broadened their portfolio of world-class IP
significantly enhanced our content output capacity.
Enabled acceleration of global direct-to-consumer expansion
ahead of peers, provide a deep bench of experience proven
management. They go through all the managers
there provided new avenues for growth and attractive.
Small regions so they have their thesis there, they can bring up
a lot of points for it. And they say, what tree on which
is Nelson. Peltz is missing, is the deal.
Facilitated the acceleration of our strategic shift a
direct-to-consumer, that's where I don't really agree with
Disney. I don't think this really
accelerated. Anything the acceleration was
happening with Mandalorian that first season of Mandalorian.
Got 10 million people signed up the first day and there are all
excited about the next episode, Disney's unique.
Incredible IP as what God people signed up for Disney plus the
fox deal. I don't think played a pivotal
role in that having The Simpsons on Disney plus.
I don't think was the big selling point and then they
asked Nelson Peltz would Tree on have preferred that a competitor
own, the fox asset and honestly, as a shareholder it's a toss-up
I don't really know if it's worth it to own the fox asset.
When it does this to your share count.
It really has to make up a huge difference.
They took on so much dilution, they To the shareholder to take
on the fox asset. And then, on top of the
dilution, they also took on a ton of debt, the debt spiked up
like crazy, two levels, Disney has never seen in its history.
The key assets that the fox deal brought Disney was The Simpsons
family guy, modern family, all great, but I don't think these
are groundbreaking Landmark pieces of assets like Pixar or
Marvel. I don't know that you can you
can really do the same with the Simpsons.
It's been running for 740 episodes we have Deadpool.
Again, these are great, Fantastic Four, good assets but
I don't think that Disney really needed them especially for the
very high price that they paid. And then they say that his
transaction analysis is fundamentally flawed and that
they do have synergies, the relying heavily on synergies to
make this work estimated two billion dollars of synergies at
the announcement and then they point out that the multiple that
they paid for Fox was consistent with the president multiples at
the time. So they're saying, we don't
really overpay. That's just how things were
selling back in. In 18, 2009 teen things were
more expensive back then multiples were higher.
The market has come down again, I think some Fair points to be
made. Now moving on we have Disney
defending their balance sheet, this is a huge point of
criticism and I think it's a concerning part of the
investment thesis of Disney is they're growing leverage and
their balance sheet but here they are defending it and let's
go ahead and hear their argument.
I'm going to give them a fair shake.
So we'll hear their arguments and see if I agree with it.
They say right now that the total debt is 46 billion.
Dollars and the net debt is 35 billion.
So, I mean, that out debt and cash, they say that what tree on
is missing in their analysis, is that the unsecured credit rating
a to is stable from Moody's, stable from Fitch and B B+ at
SP, pelts calls, this a balance sheet from hell, right?
They also say what Tran is missing is that the global
pandemic in the year 2020 and 2021 dramatically impacted
Disney. And as a result, we Made it that
we lost billions and cash and provided operations.
Let me get this straight Disney. So when you're trying to take
credit for the performance of the stock you leave out 2020 and
2021, you don't include that in your performance just a few
slides ago. You conveniently leave that out.
But later in the exact same slide presentation, when you're
talking about things going wrong with the company, then you blame
2020 and 2021. So what is it is 2020 and 2021
Aided in the company's performance or not, because you
can't simultaneously leave it out when you're talking about
the performance and how great Disney has done relative to the
S&P 500 and then use it as an excuse for your horrible balance
sheet, but that is exactly what they're doing.
They're using this as the excuse domestic and international parks
and Resorts closed over five hundred and twenty eight and
eight hundred and seventy-five days collectively.
They say that their cruise lines were shut down.
Their theaters were shut down. So business was closed and they
took on a lot of debt now, ignoring the Elective timeline
that Disney picks. We can at least, look at their
measurement of their leverage. I think understates it a little
bit when I went through the math on qual, trim and I looked at
the exact numbers, the net debt, level to ibadah, I found was
around 3.4 times and that is a little bit different than the
calculation they came up with and they have a more specific
nuanced way of looking at it that I don't necessarily agree
with the way that I did. It was very straightforward.
So I think either way the balance sheet really isn't a
balance sheet from hell. I think that's Overstating it,
but they took on a lot of Leverage.
Their leverage has been going up over time.
I don't consider that a good Trend at all and they also
diluted the shareholder a lot with this fox deal.
So both growing leverage and dilution.
Both things that I don't think are really benefiting
shareholders. Now they move on saying that and
this is one of the most ironic things that they could say try
to find the irony in the statement, I'll help you out,
pelts has no track record and large cap, Media or Tech.
No track record so they're criticizing this activist
investor for not having a track record and wanting to offer
suggestions and research and insights.
Okay. Disney Nelson Peltz has no track
record. Neither did Bob capek?
He was the parks operator, and you put them as a CEO of the
company and said that you had full faith, you endorsed him.
He said that he was the one that was perfect for the job.
I'm sorry. The irony is just so strong in
them highlighting that you need a large cap media experience
when Bob capek, The guy they picked had none of that.
So now all of a sudden it's very important when you're talking to
Nelson Peltz now. They do go through and criticize
him and try to embarrass him through these.
These little Snippets of what he said on his CNBC interview and
I'll just give you an example of how misleading this is.
Here's one of them, the investment thesis.
Okay, so they highlight Nelson Peltz investment thesis, the
CNBC anchor said why Disney and they simply highlight pelts
saying, why not Why not? That's his investment thesis and
they leave it there. Nothing else.
So, that's how Disney's portraying this.
Let's go ahead and go to that actual interview.
What Nelson Peltz actually said, why not Disney just stopped it
there and said that's his entire complaint.
That's his investment thesis. This is what he goes on to say,
we live skin in the game. You know, we look at a company
and we look at this. The, and we say that this is The
most Advantage consumer company on the planet and we love it.
That's the reason why we're here.
However, the TSR the total shareholder return over 135, 10
years has materially underperformed, the S&P and
underperformed the proxy peers that the companies selected.
So Disney misrepresented. Now some help, It's they cut it
off right after him saying, why not?
And they didn't leave in the part where he goes on to say
because you have underperformed the Benchmark index on the
one-year, the three-year the five year and the tenure
timeline, and you've underperformed your own pairs,
which they have. Here's a look at Disney's
performance over the 10-year timeline.
Disney's, the one in red. The S&P 500 is the one in blue,
Disney has underperformed the Benchmark index.
And on, top of that they've underperformed at dramatically,
the Walt Disney company has a compound annual growth rate of
It's 7% while over the same time period, the S&P 500 was 12.4, so
they're compounding at roughly half the rate.
So, Disney, just highlighting Nelson Peltz his comments as why
not. This is highly misleading.
That is not what Nelson Peltz said.
He highlighted how you have an advantage company with a wide
moat and your underperforming, both the index and your peers.
That's why not just why not? That was just two words he said
again selectively picking that's what Disney's doing all
throughout this presentation. They're picking their
performance right before covid, but when they include the
balance sheet there, including covid, as well as an excuse,
they're selectively picking what Nelson Peltz said.
Making him look stupid by saying, why not?
That's why I'm involved in the company.
This is so disingenuous now look, I understand why Disney's
doing this. I understand why they're hitting
back so hard against Nelson Peltz.
They're misrepresenting what he said to make him look stupid.
The reason why is something they don't address in this
presentation, which is their excessive compensation, the
Disney inside, Both the executives and the directors
have paid themselves, hundreds of millions of dollars while
underperforming both their peers and the index over the past
decade, that's what's been going on and Disney does not like that
Nelson. Peltz is coming in and
highlighting their excessive pay compensation amidst their under
performance. So that's something I can
completely see why they want to misrepresent him and make him
look dumb. He's going in and he's pointing
out that they're over paying themselves.
But overall, I would highlight this response from Disney as
misleading. Leading, they selectively chose
timelines that serve them when they're talking about
performance highlighting their performance, right?
Up until 2020 covid, and then ending it there.
But then when they're talking about their balance sheet and
their excessive leverage, then they include 2020 and 2021 as an
excuse, they ignore, the fact that Bob capek even exists that
they chose him that they endorsed him, that they had poor
judgment, and who they put in place.
And when they criticized, Nelson Peltz for not understanding a
big Media company, they ignore the fact that they chose Bobbie.
Hey, Peck as their executive, who is someone that didn't
understand or have experience with a big Media company.
And when they actually did address Nelson Peltz has
specific criticisms, they grossly took his words out of
context to intentionally, try to embarrass him.
And the one thing that they left out of this presentation, that
they didn't address at all, is there excessive pay for
themselves amidst under performance?
They conveniently just left that part right out.
So overall I thought the presentation was misleading and
I hope that Nelson Peltz does get a board seat.
That's all for this episode. Hope you enjoyed seeing the next
one.