Wait, Is Bob Chapek Not Safe After All?
The Walt Disney Company has turned into a soap opera over the past 30 months.
Since Bob Iger randomly promoted Bob Chapek as the new Disney CEO, the entire company has seemed chaotic. Disney isn’t responsible for much of what has happened.
Photo: AFP
Instead, executives are merely reacting to ceaseless catastrophes like the pandemic, the Great Resignation, supply chain issues, and hyperinflation.
Even when Disney appears likely to settle down, something unpredictable happens…as was the case this week.
Photo: measureupgroup.com
An influential activist investor has just purchased $1 billion in Disney stock, and he has some demands.
One of them has Wall Street whispering once again. Wait, is Bob Chapek not safe as Disney CEO after all? Read on to find out…
Photo:NYpost.com
Daniel Loeb’s Power Move
Daniel Loeb, the founder of Third Point Capital, reportedly claims a net worth of $4.2 billion.
Loeb’s real power stems from acting as the decider for Third Point, a hedge fund. Its sole purpose is to take equity stakes in Fortune 500 companies.
Photo:Thirdpoint.com
Whenever Loeb and Third Point make a move, Wall Street pays careful attention, as does Disney.
As an example, early in the pandemic, Loeb suggested that Disney should suspend its $3 billion annual stock dividends.
Photo:NY Times
The investor suggested this tactic on October 7th, 2020.
Disney had already done something temporary in May of that year, but they made it semi-permanent after Loeb’s request.
Image: The Wall Street Journal
We’re nearly two years down the road, and Disney still hasn’t restored its annual dividends. Instead, it has funneled that money into streaming content.
Coincidentally, Loeb has reiterated that strategy as part of a series of suggestions this week.
Photo: CNBC.com/Getty
Loeb’s Second-Biggest Disney Frustration
Loeb feels strongly that Disney should capitalize on a unique market climate. He views the company’s streaming position as at an inflection point.
One of the investor’s most pointed suggestions involves ESPN. Loeb believes Disney should spin off the sports channel/streaming service.
Photo: ESPN+
By doing so, Disney can maintain firm control of ESPN while also protecting the Mickey Mouse brand from the specter of gambling.
ESPN will almost certainly form deeper ties in the gambling community over the next five years, which analysts believe is a boom period for betting.
Photo: Hulu
Similarly, Loeb wants Disney to acquire Hulu+ from Comcast as soon as possible.
You may recall that Disney already owns Hulu. However, Disney must pay Comcast for its one-third ownership interest by 2024.
Third Point’s leadership team argues that Disney should broker an agreement with Comcast asap to maximize the service’s potential.
Comcast and Disney are currently in arbitration over the matter of a multi-billion-dollar payment. So, this suggestion strikes me as ambitious.
Photo: Getty
You can think of the matter as divorcing parents arguing over custody. It’s messy and awkward and an indefinite problem for both parties.
Remarkably, that’s not Loeb’s main point of contention, though. Sure, he cares about the money, but something bothers him more.
Photo: CNBC
Loeb’s Biggest Disney Frustration
One of the prevailing beliefs among investors focuses on leadership. Wall Street’s power players prefer skilled C-suite executives.
I’m talking about CEOs, CFOs, COOs, and so forth. When a company lacks them, they often struggle. However, Wall Street also knows a less publicized secret.
Photo: The Walt Disney Company
The actual decision-makers at Fortune 500 companies aren’t the C-suite executives. Instead, it’s the Board of Directors, the people who vote on happenings.
Loeb feels that Disney’s Board of Directors is sorely lacking. In his words, current board members possess “gaps in talent and experience as a group that must be addressed.”
Photo: The Times
Here’s the part where you should pay close attention. Loeb added the following: “(Third Point has) identified potential board members who we believe would make essential contributions.”
That’s not quite a hostile takeover, but you’ll find similar language in such scenarios. Loeb wants to replace some of Disney’s 11 members of the Board of Directors.
Hey, do you know how you vote out a CEO with a three-year contract? You acquire a majority of the 11 board member votes.
Let’s say that Loeb has it on good authority that three members of Disney’s board – a hypothetical, not a number based on sources – don’t like Chapek.
Photo: Disney
Third Point would need to swap out three Disney board members for three of Loeb’s people. Then, he’d have the opportunity to get rid of Chapek.
Then again, Chapek might not even be the target here. After all, Susan Arnold replaced Bob Iger as Disney’s Chairperson of the Board.
Image Credit: Health Quest Capital
For all the headlines about Chapek, Arnold holds the most power at Disney…as long as she maintains the board’s support.
Currently, we have reason to question whether she possesses Loeb’s support.
Source: Variety.com
Could Loeb Force Chapek Out?
First, I should mention that corporate boards all have their own governance rules. So, much of what I’m saying here is general rather than specific to Disney.
As a recent example, the WWE couldn’t fire its then-CEO, Vince McMahon, despite several errors in judgment and (arguably) white-collar crimes.
Photo: Variety
McMahon’s stock ownership guaranteed that if he did get voted out by his Board of Directors, he could fire them all.
Then, he’d replace them with his own people, who would promptly vote him back into power. But instead, McMahon had to step down willingly, which he ultimately did.
Photo: Wikipedia
Wall Street’s pretty wild, y’all. There’s a reason why so many people got hooked on Succession.
So, the standard Board of Directors vote may not apply here. I’d need to examine the language in the charter, which would frankly require legal expertise I don’t possess.
What I can say is that Disney currently floats about 1.8 billion shares of stock. So even a billion-dollar investment would only reflect about 10 million shares.
Photo:Investopedia
Loeb’s current ownership stake is about half a percent, barring unannounced personal holdings. He holds virtually no real power here.
However, Wall Street’s respect for Third Point has turned this into a story at a time when Chapek finally seems comfortable.
Source: “Once Upon A Disney Wish”
Is Bob Chapek Safe?
Loeb likely cannot do anything here other than rattle his saber. Realistically, he’d need other significant investors to agree that Disney should overhaul its board.
Meanwhile, Disney countered with this official statement:
“Our independent and experienced board has significant expertise in branded, consumer-facing and technology businesses as well as talent-driven enterprises….”
Photo: Share Market daily
That’s a defiant message that reads as “go pound sand” or, in less polite terms, “GFY.”
So, Disney doesn’t think Loeb has enough leverage here to force leadership changes.
Photo: Disney
Chapek and Arnold only face new hurdles if Loeb finds allies for his cause. Until then, they remain safe in their positions at the head of Disney.
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Feature Image: CNBC.com
