UPDATED with Disney’s response. Disney has responded to a letter from Third Point’s Daniel Loeb, reaffirming the leadership of CEO Bob Chapek and pushing back at Loeb’s call for a “refresh” of the company’s board.
“We welcome the views of all our investors,” Disney said in a statement. “As our third quarter results demonstrate, The Walt Disney Company continues to deliver strong financial results powered by world-class storytelling and our unique and highly valuable content creation and distribution ecosystem. Under the leadership of Bob Chapek, the company has delivered this strong performance while navigating the Covid-19 pandemic and its aftermath, including record streaming subscriptions and the reopening of our parks, where we have seen strong revenue and profit growth in our domestic parks business.”
As to the board, the statement described the body as an “independent and experienced” group with “significant expertise in branded, consumer-facing and technology businesses as well as talent-driven enterprises.” It has also “benefited from continuous refreshment with an average tenure of four years,” the statement added.
In a letter to Disney CEO Bob Chapek, activist investor Daniel Loeb urged the exec to spin off ESPN and integrate Hulu into Disney+, among other changes.
The set of recommendations came as Loeb’s Third Point hedge fund revealed a new stake in Disney.
Loeb, who has put media companies in his crosshairs the past, famously tangling with Sony and engaging in a back-and-forth with George Clooney, also called for cost cuts and an expansion of Disney’s board of directors. Third Point had a position in Disney from 2020 to earlier this year, and today’s letter is accompanied by a “repurchased” stake.
“ESPN would have greater flexibility to pursue business initiatives that may be more difficult as part of Disney, such as sports betting,” Loeb explained in the letter. “We believe that most arrangements between the two companies can be replicated contractually, in the way eBay spun PayPal while continuing to utilize the product to process payments.”
On the streaming front, Comcast is slated to sell its 33% stake in Hulu to Disney in 2024, but Loeb called for Disney to make “every attempt” to swing a deal sooner. The company took full operational control of Hulu in 2019, but Comcast has retained a financial stake, which has kept Hulu limited in terms of expansion outside the U.S. or other moves to stimulate growth.
“We believe that it would even be prudent for Disney to pay a modest premium to accelerate the integration,” Loeb wrote. “We know this is a priority for you and hope there is a deal to be had before Comcast is contractually obligated to do so in about 18 months.”
Buying out Comcast would enable Disney to merge Hulu into Disney+, a move that has been long anticipated by media investors and streaming specialists.
“We believe that integrating Hulu directly into the Disney+ DTC platform will provide significant cost and revenue synergies, ultimately reigniting growth in the domestic market,” Loeb wrote.
Unlike the Sony chapter or other corporate crusades, Loeb’s outreach to Chapek did not appear to be adversarial. Investors cheered the stirring of the pot, boosting Disney shares 2%, and they approached the midpoint of the trading day at $124.40. After the company reported strong quarterly earnings last week, with positive trends in theme parks and streaming subscriber growth, shares responded well. They still remain about 30% below their year-ago levels.
“We have had over two years to observe management navigate the most challenging time in Disney’s history, as you led the organization to simultaneously grow the DTC business, guide the parks from pandemic closures to record-revenues and profits, and create quality entertainment content,” the letter said. “This quarter’s results are an important proof point that Disney’s complex transformation is succeeding.”
The company’s board, Loeb argued, could use some shoring up. “This is not meant to single out any current board members, but we believe there are gaps in talent and experience as a group that must be addressed,” he wrote.
Board chairman Susan Arnold first joined the board in 2007. The other eight non-executive members of the board came aboard between 2015 and 2021.