ValueAct builds stake in Disney, adding drama

ValueAct Capital has built a large stake in Walt Disney (DIS.N) and sees room for the media and entertainment giant’s stock price to roughly double, people familiar with the investment firm’s thinking said on Wednesday.

San Francisco-based ValueAct, well known for working collaboratively with target companies, has known the Disney team for more than a decade and has been in contact with management as it built its stake over the last months, said the sources, who were not permitted to discuss the firm’s views publicly.

News of ValueAct’s stake in Disney was first reported by 13D Monitor.

While the exact size of the stake is unclear and it could not be learned what specific changes ValueAct may be pushing for, the people said, ValueAct believes the home of Mickey Mouse can flex its muscles anew.

For Disney CEO Bob Iger, who returned from retirement last year and has spent much of this year overhauling the business and grappling with demands from activist investor Trian Fund Management, ValueAct’s new stake may become a silver lining, investors, lawyers and industry analysts said.

ValueAct, often invited onto boards without publicly pushing for seats, could become a preferred director candidate for Iger to install, providing counsel on overhauling the business and quieting a chorus of investor voices suggesting one of their own should help govern Disney, the sources said.

Disney’s board, which extended Iger’s contract through 2026, also is developing succession plans, sources said.

The investment firm has signaled it is supportive of management and optimistic about Disney’s future and told people the company’s stock price could trade between $120 and $190 a share, far above its $93.93 closing price on Wednesday, the people said.

Like other major media companies, Disney is facing declining television ad revenue, a movie box office that has yet to return to pre-pandemic levels, and a streaming business that has yet to turn a profit.

Iger has told investors the company is evaluating options for dealing with those challenges, including whether to sell its television business. It is also actively seeking partners in its ESPN division, though Disney plans to retain ownership of its sports brand.

Investors view Disney as well-positioned in terms of streaming subscriber growth, and its content library – anchored by such recognizable entertainment brands as Pixar Animation Studios, Star Wars and Marvel, the people said. Its theme parks earn billions of dollars of additional revenue from its familiar characters and stories, the sources said.

In some respects, ValueAct’s position in Disney created fresh drama at a time when the company, valued at $167 billion, is already facing a new battle with Nelson Peltz’s Trian.

Peltz said in a regulatory filing on Tuesday that Trian increased its stake in common shares by more than 400% to own 32.9 million shares, worth roughly $2.7 billion, at the end of the third quarter. That stake is far bigger than those held by hedge funds Coatue Management, Adage Capital Partners and DE Shaw which each own stakes worth more than $100 million.

Last month, Peltz, 81, signaled he planned to nominate several directors to the board when the nomination window opens in a few weeks. This week two sources familiar with Peltz’s thinking said he will likely nominate between three and four directors.

Peltz may be laying the groundwork for a second proxy fight after abandoning his push for one board seat in February after the company laid out plans to address criticism.

Trian declined to comment.

Often companies that are under attack from an activist try to blunt the hedge fund by proactively refreshing its board to suggest that many of the criticisms are already being addressed.

Peltz has argued the company needs a shareholder in the boardroom and Disney said earlier this year that Peltz was not qualified to serve on its board.

ValueAct meanwhile has board seats at roughly half of all companies in its portfolio.

ValueAct often offers its deep understanding of helping technology companies like Microsoft (MSFT.O) reinvent themselves, people familiar with the firm said. In January, ValueAct CEO Mason Morfit was invited onto Salesforce’s (CRM.N) board at a time when the company had at least five activist shareholders. Reuters