On October 16, Walt Disney (NYSE:DIS) celebrated its 100th anniversary. It’s too bad the good news will have little effect on DIS stock. It could use a big boost right now.
As for its anniversary, Walt and Roy Disney agreed in October 1923 to create the animated film series “Alice Comedies” under Disney Brothers. Three years later, they changed the name to Walt Disney Studio.
The rest, as they say, is history. I’m sure CEO Bob Iger would turn back the clock if he could. Sadly, Aladdin’s three wishes don’t exist in real life. It doesn’t help Disney’s share price that investors continue to wonder if Iger has lost the magic.
As Iger works to right the ship, it can’t be easy to make decisions when so many people have weighed in on the subject in recent months. Heck, even Nelson Peltz is back, pestering the well-paid CEO.
My editors have asked me to decide whether shareholders should keep or sell their DIS stock.
Here are my two cents.
Nelson Peltz Seeking Board Seats
The billionaire activist investor withdrew his fight against Disney in February so Iger could work on turning around the business. However, the shares have fallen so much since then that he’s back looking for board seats and Iger to take his turnaround plans seriously.
Peltz owns approximately 1.6% of Disney stock. While that’s not chump change, I’m not sure why he feels that gives him a right to one or more seats at the boardroom table. Boston-based investment manager Geode Capital Management owns 33.8 million shares of DIS stock. As far as I know, they don’t have any seats on Disney’s board. Nor are they asking for any.
If Peltz buys an additional 180 million shares, I think Disney’s board and Iger should be more willing to listen to Peltz’s ideas.
What are those ideas? His statement in January laid out his thoughts on Disney. Barron’s reported Peltz’s comments on the matter:
“In recent years, the company has lost its way resulting in a rapid deterioration in its financial performance from a consistent dividend-paying, high free cash flow generative business into a highly leveraged enterprise with reduced earnings power and weak free cash flow conversion.”
Peltz’s most significant issue seems to be the company’s $71 billion acquisition of 21st Century Fox in 2019. He believes Iger and Disney overpaid for Fox, pushing its net debt to more than $40 billion, and most importantly, as it relates to Peltz, it prevented Disney from lavishing shareholders with cash.
As for any new solutions from Peltz, he’s yet to say anything except that he now wants more than one board seat.
Woulda. Coulda. Shoulda.
In hindsight, it’s easy for Peltz to criticize Iger for paying too much for Fox. However, that’s a bit of revisionist history if you ask me.
When Disney and Fox started talking about a sale in 2017, the number was more like $50 billion. Then Comcast (NASDAQ:CMCSA) came into the picture looking to bulk up its direct-to-consumer business, and the price jumped to $71 billion when the deal was done.
Rupert Murdoch can thank Comcast CEO Brian Roberts for the big windfall. The Financial Times reported in January:
“‘We had to do Disney Plus,’ said one person who worked closely with Iger when the deal was struck, referring to the streaming service that the company launched in part with content acquired under the Fox transaction. ‘Prices were higher, multiples were higher at that time and we had a substantial competitor in Comcast that was nipping at our heels.’”
The day Disney and Iger determined that Disney+ was the future direction for the business, the Fox deal was fait accompli.
Three Ways to Help Disney Get Its Mojo Back
First, it should sell all its linear television businesses, including ABC. Needham analyst Laura Martin recently stated that Disney should sell ABC to the National Football League.
“If the NFL buys ABC from Disney… that would guarantee its reach into 100% of U.S. homes for the long term. That is, it could never be held hostage by Amazon or others,” Barron’s reported Martin’s October 9 comments to clients.
Numbers like $10 billion have been mentioned for ABC. Whatever price Disney can get is the best price. It’s a major distraction.
The second thing it should do is repatriate the 33% of Hulu it doesn’t already own from Comcast. That would help it chase down Netflix (NASDAQ:NFLX) in the streaming wars.
Lastly, I still feel it makes sense to take ESPN public, but not before securing another minority partner besides Hearst, who owns 20%. Another 20% for a minority partner, and up to 9.9% for public investors, and hang on to majority control for as long as it makes sense from a direct-to-consumer point of view.
With Disney’s share price at its lowest point since 2014, if you’ve held since 2021, it makes no sense to sell now. You should keep your DIS stock.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
