Disney has Underperformed | Restore The Magic at Disney

Restore
The Magic

Trian believes Disney is the world’s greatest entertainment company, BUT it hasn’t performed for shareholders

We want this beloved company to live up to its potential for shareholders and generations of Disney fans.

The Trian Group beneficially owns a ~$3B stake and believes the board needs new, truly independent directors.
Trian’s board nominees, Nelson Peltz and Jay Rasulo, want to #RestoreTheMagic.

Disney Shareholders and Fans Not Feeling The Love

Trian loves Disney, but does Disney leadership love its shareholders and fans? Over the past decade, Disney’s shareholders would’ve been much richer if they’d invested in the S&P 500 OR Disney’s self-selected media peers instead. Trian’s board nominees Nelson Peltz and Jay Rasulo want to help.

Total Shareholder Return (10-Year)

Source 1 and 2

Disney’s Relative Total Shareholder Return Performance

Disney’s TSR Relative To:
FQ1’23
Earnings
1-Year
3-Year
5-Year
10-Year
vs S&P 500
(32%)
(34%)
(66%)
(89%)
(168%)
vs Disney’s Self-Selected Media Peers
(40%)
(48%)
(35%)
(77%)
(401%)

Source 2

“[Nelson] Peltz can be a change agent because right now the [Disney] Board seems downright unfocused.”

Jim Cramer
Mad Money; December 5, 2023

Disney’s Board Needs Focus, Alignment and Accountability

Trian believes the root cause of Disney’s underperformance is a board that is too closely connected to a long-tenured CEO and too disconnected from shareholders’ interests.

Disney’s non-management directors have watched as shareholder returns have lagged.

Non-Management
Disney Directors3
Years of Tenure
Disney TSR
During Tenure
S&P 500 TSR
During Tenure
Mary Teresa Barra
6
-15%
96%
Safra A. Catz
6
-23%
69%
Amy L. Chang
2
-54%
6%
Francis A. deSouza
6
-23%
69%
Carolyn N. Everson
1
-15%
11%
Michael B.G. Froman
5
-24%
64%
Maria Elena Lagomasino
8
-23%
137%
Calvin R. McDonald
2
-54%
6%
Mark G. Parker
8
-12%
156%
Derica W. Rice
5
-26%
69%

Source 3

Disney’s non-management directors have watched as shareholder returns have lagged.


Who’s Invested in Disney’s Future?

Disney CEO Bob Iger has sold more than $1 billion in company stock since 2005 and currently only owns ~$19M of DIS stock. Disney’s non-management directors collectively only own ~$14M in DIS stock. Meanwhile, the rest of the shareholders, like Trian, remain deeply invested in the hoped-for turnaround at Disney. Trian’s board nominees, Nelson Peltz and Jay Rasulo, still believe in the Disney magic.

Value of Position in Disney

Sources 3 and 4

“Disney over the past year has struggled mightily with a surprising number of flops, declining along with massive losses in its streaming business. [Nelson] Peltz is looking for a turnaround.”

Krystal Hur
CNN Business: The battle for the future of Disney just got serious; December 14, 2023

Trian believes that Disney’s board needs highly qualified, truly independent directors whose interests align with shareholders. Join us as we work to #RestoreTheMagic.


Put very simply, Trian intends to work with the Board to help drive Disney’s outperformance with tangible targets, goals, and true accountability:

Acknowledged Issue
Disney’s Current Path5
Trian’s Goals & Initial Perspectives
Corporate Governance
Preserve as much of the status quo as possible by playing defense – evidenced by limited changes to compensation and succession processes
Adopt best-in-class governance; finally complete a successful CEO succession; and align management pay with performance
Streaming Profitability
“Focused on achieving significant
and sustained profitability” – no guidance or tangible targets beyond breakeven
Target and achieve Netflix-like margins of 15-20% by FY 2027
Future of ESPN
“Building ESPN into the preeminent digital sports platform” – lacking a tangible business plan or defined cost to shareholders
Commit to a reasonable, defined payback period and return profile on ESPN Flagship DTC and communicate it in detail prior to launch
Studio Creativity
“Improving the output and economics
of our film studios”
Board-led review of creative processes and structure to restore leadership accountability and reclaim #1 box office position w/ leading economics
Parks and Experiences Growth
“Strategically investing in our Experiences business to turbocharge growth”
Execute on a clear vision for Parks targeting at least high-single digit operating income growth to ensure adequate returns on ~$60bn of capex

Source 5

Corporate Governance

Disney’s Current Path5

Preserve as much of the status quo as possible by playing defense – evidenced by limited changes to compensation and succession processes


Trian’s Goals & Initial Perspectives

Adopt best-in-class governance; finally complete a successful CEO succession; and align management pay with performance

Streaming Profitability

Disney’s Current Path5

“Focused on achieving significant and sustained profitability” – no guidance or tangible targets beyond breakeven


Trian’s Goals & Initial Perspectives

Target and achieve Netflix-like margins of 15-20% by FY 2027

Future of ESPN

Disney’s Current Path5

“Building ESPN into the preeminent digital sports platform” – lacking a tangible business plan or defined cost to shareholders


Trian’s Goals & Initial Perspectives

Commit to a reasonable, defined payback period and return profile on ESPN Flagship DTC and communicate it in detail prior to launch

Studio Creativity

Disney’s Current Path5

“Improving the output and economics of our film studios”


Trian’s Goals & Initial Perspectives

Board-led review of creative processes and structure to restore leadership accountability and reclaim #1 box office position w/ leading economics

Parks and Experiences Growth

Disney’s Current Path5

“Strategically investing in our Experiences business to turbocharge growth”


Trian’s Goals & Initial Perspectives

Execute on a clear vision for Parks targeting at least high-single digit operating income growth to ensure adequate returns on ~$60bn of capex

Source 5

While Disney is Stuck in a Rut, Netflix Continues to Raise the Bar in Streaming

Netflix’s impressive performance increasing operating margins more than 5x (from 4% in 2016 to 21% in 2023) and its ability to grow free cash flow (from negative $3.3B in 2019 to positive $6.9B in 2023) highlights the significant opportunity Disney has to improve its profitability

Netflix also guided to achieving 24% operating margins next year, which stands in stark contrast to Disney’s goal of “breakeven” profitability next year, especially considering Disney’s asset quality and significant revenue scale

Streaming Operating Margins in Context

Source 6

“In the past, I think that Nelson Peltz has done a good job in general on boards that he joins. So, I think avoid the fight. They got other things to worry about.”

Karen FinermanFast Money; November 7, 2023

“[Nelson Peltz] should get a seat. And [Bob Iger] would be smart to [add him to the Disney board].”

Scott GallowayPivot Podcast: Israel-Hamas War, Search for a Speaker, and Guest Esther Peres; October 13, 2023

“Nelson Peltz of course is coming with Jay Rasulo, who was a potential CEO of Disney, ran the Parks and was the CFO, so he is obviously well qualified.”

Jessica Reif EhrlichBofA Securities; December 15, 2023

Source 1: Information about the Participants and a description of their direct or indirect interests by security holdings or otherwise can be found in the preliminary proxy statement on Schedule 14A filed by Trian Fund Management, L.P. with the SEC on January 18, 2024 (“Trian’s Proxy Statement”).

Source 2: FactSet. Note: Disney performance measures Total Shareholder Return (“TSR”) through October 6, 2023 defined as the total return an investor would have received if they purchased one share of stock on the first day of the measured period, inclusive of share price appreciation and dividends paid. October 6, 2023 represents the trading day prior to the Wall Street Journal (“WSJ”) article titled “Nelson Peltz Boosts Disney Stake, Seeks Board Seats” by Lauren Thomas and Robbie Whelan reporting on Trian’s increased beneficial ownership in Disney shares and expected request for Board representation. The S&P 500 is highlighted here only as a widely recognized index, however, for various reasons the performance of the index and that of the securities mentioned above may not be comparable. One cannot invest directly in an index. “Disney’s Self-Selected Media Peers” represents the simple average of “Media Industry Peers” as defined in the Company’s proxy statement for the 2024 Annual Meeting (the “Company’s 2024 Proxy Statement”) and consists of Alphabet Inc., Amazon.com, Inc., Apple Inc., Comcast Corp., Meta Platforms, Inc., Netflix, Inc., Paramount Global and Warner Bros. Discovery, Inc. The FQ1’23 earnings report date was February 8, 2023.

Source 3: FactSet. Note: Non-management director (excluding Jeremy Darroch, who was appointed to the Board effective as of January 9, 2024) performance measures TSR from the effective start date of each member as a director on the Board through October 6, 2023. October 6, 2023 represents the trading day prior to the WSJ article titled “Nelson Peltz Boosts Disney Stake, Seeks Board Seats” by Lauren Thomas and Robbie Whelan reporting on Trian’s increased beneficial ownership in Disney shares and expected request for Board representation. “S&P 500 TSR During Tenure” is defined as the total return an investor would have received if they invested in the S&P 500 from the effective start date of each non-management director on the Board through October 6, 2023, inclusive of share price appreciation and dividends paid. The S&P 500 is highlighted here only as a widely recognized index, however, for various reasons the performance of the index and that of the securities mentioned above may not be comparable. One cannot invest directly in an index.

Source 4: Robert A. Iger stock sold represents the cumulative net value of Disney shares sold since 2005 based on Form 4 filings and the Company’s 2024 Proxy Statement. Represents market value of Disney shares held by all Disney non-management directors and Bob Iger, as applicable, as reported in the Company’s 2024 Proxy Statement. Nelson Peltz beneficially owns Disney shares worth approximately $3 billion and Jay Rasulo owns Disney shares worth approximately $658,000, in each case as further detailed in Trian’s Proxy Statement. Market value based on Disney’s share price at close of business on January 3, 2024.

Source 5: Company filings and transcripts. Note: All quotes sourced from Disney’s FQ4’23 earnings presentation and call transcript.

Source 6: Company filings and transcripts, FactSet. Note: All Netflix data is sourced from its shareholder letter, dated January 23, 2024. “Streaming Operating Margins” refer to EBIT margins for Netflix’s overall business and Disney’s Entertainment DTC segment. (1) Revenue represents 2023A for “Netflix in 2023″ and consensus estimates for all other figures as of 01/25/24. (2) Netflix’s EBIT margin was 13% in 2019 when it generated $20bn of revenue and 18% in 2020 when it generated $25bn of revenue.