By Svea Herbst-Bayliss
NEW YORK (Reuters) – Billionaire investor Nelson Peltz lost but also won.
Hours after shareholders voted to keep the octogenarian hedge fund manager off Walt's board disney (NYSE:), ending the most expensive and closely watched boardroom fight of the year, there are few signs that the loss will hurt him or his business.
“I don't think this means anything to Nelson Peltz,” said Ken Squire, founder of the research firm 13D Monitor, which tracks activists. “He was never the favorite to win a proxy fight at Disney against (Disney CEO) Bob Iger.”
With a personal net worth of $1.7 billion and a company that oversees $10 billion in assets and has several winning bets in its portfolio this year, the 81-year-old is finding the silver lining in the loss, according to lawyers, bankers and industry analysts.
Peltz's Trian Fund Management owns more than $3.5 billion in Disney common stock, making it the fifth-largest investor in the entertainment conglomerate. Peltz said in a statement Wednesday that Disney had announced new operating initiatives and capital improvement plans since launching a new round of criticism in October.
The result has been positive, he added, noting that Disney stock has risen about 50% since October, when his company began reengaging with Disney, and is the best performer this year.
For his own investors in Trian, Peltz offers what matters most to them: profitability.
DISNEY WINS TRIAN FUEL RETURN
Disney is among several winners in Trian's portfolio this year. Others include Allstate (NYSE , which is up 20% since January, British plumbing and heating products distributor Ferguson PLC (NYSE , which is up 15% this year) and food distributor Sysco (NYSE , which has gained 8%, people familiar with the portfolio said.
In the first three months of 2024, Trian returned close to 10%, according to one investor. In the first two months of the year, the broader hedge fund industry gained 2.7% and the average activist investor rose 3.15%, according to data from Hedge Fund Research.
While Disney's stock price is still well below its March 2021 peak, it is up 32% since January as Disney revitalizes its film and television franchises and works to make its streaming business profitable. .
Peltz claims, some investors say rightly, that he forced the Mickey Mouse house to accelerate its transformation since Iger returned from retirement in November 2022 to take the helm for a second time.
Activist investors like Peltz sometimes take credit when a company makes changes that were already underway before they came along. But when they reap the benefits of rising stock prices, investors are happy regardless of the outcome of a proxy contest, investors and lawyers said.
LESSONS FOR THE NEW PLAYBOOK
Peltz has fought just four fights since launching the company in 2005 and, win or lose, has continued to successfully take on new targets. After Peltz lost his fight at DuPont (NYSE:) in 2015, the chemical company's CEO left that year, paving the way for Peltz to forge strong relationships with the new CEO.
At Procter & Gamble (NYSE in 2017, Peltz finally joined the board of directors and buried the hatchet with the CEO, demonstrating how activists and management can work collaboratively.
Similarly, other activists who lost proxy contests, including Bill Ackman of Automatic Data Processing (NASDAQ:) in 2017, sought other investments and prospered. Ackman has earned an average return of 31% over the past five years.
Disney's fight may offer lessons to a new generation of less prominent activists. After activists delivered strong returns in 2023, many investors are willing to allocate more capital to the strategy and newcomers want a piece of that. But industry experts warned that the old playbook may no longer work.
The cult of personality is fading, with lawyers and investors warning that the once-popular practice of including a well-known hedge fund director on a shortlist to win board seats is no longer a sure path to victory.
Peltz is among the best-known investors, but when Vanguard and BlackRock (NYSE failed to endorse him for a position at Disney, he suggested that activists might have to find industry experts to run as candidates on their slates.
Activists “will need to think about how they articulate their strategic premise so that it resonates best with passive investors,” said Lyndon Park, who advises boards and management teams as head of Shareholder Advisory at ICR.
At Disney, Peltz's message was that the company had lost its creative spark and had made a mistake in succession planning. But several investors said they wanted to see some strategic ideas from Peltz on how to improve the company.
“No one is bigger than the market and activists will have to adapt,” said ICR's Park.
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