Welcome back everyone. We have a little bit of a drama alert. Remember, just last week, someone named Nelson Peltz, an activist investor took a steak and Disney and then he released this big slide deck presentation. Now, I went through the entire thing, the slide deck presentation was a scathing rebuke of Disney's management. It went through detail.
After detail of where Disney has has really just gone wrong and it has so much data in it. It's an extensive study on Disney. I think it's a great piece of research. And we went over the entire thing that slide deck presentation painted, a very negative outlook for Disney. A lot of people in the comments said, wow, I don't even know if I want to hold Disney stock after reading that. Well, we have an update, Disney has officially responded to the Nelson.
Peltz, accusations and Analysis and it is a spicy response. I can tell that Disney viewed this as a little bit of a mic drop moment, where they're they're Punching back hard. Now, they did this in an SEC filing. It's called the current Disney board is a right for the shareholders January. 17th 2023. That is today. So we're going to go through this presentation will look at Disney's response. I'll go through Page by Page and tell you where I think Disney has it, right?
And where I think they're making valid claims, as well as where I think they're dead wrong, because Disney says, a lot of things that I think are frankly, laughable in this presentation. So, let's go ahead and Jump Right In. We have the first slide here. The current board is the right. And for Disney shareholders, why did they start with this? Well, the board obviously took this personal because Nelson Peltz, his big criticism is basically the board doesn't know
what they're doing. They're doing a poor job. They're not getting returns for the shareholders while they're simultaneously rewarding themselves with excessive compensation. That was a lot of the criticism which I agree with I think Nelson Peltz in his presentation. Highlighted a lot of very valid criticisms Buzz. Go ahead and look at the response here. They say independent highly.
Qualified board has provided strong oversight focused on delivering Superior. Sustained shareholder value. Lots of Buzz words they're highly qualified. Delivering Superior sustained, shareholder value, lots of words. What I want to get to is the actual data, they say, Disney board, regularly reviews, and is heavily involved in setting the Strategic direction of the
company. Okay. Definitely navigated the pandemic and oversaw launch to direct-to-consumer platforms and pivoted from startup phase to focus on profitability. They acted decisively to address leadership challenge as it emerge. Isn't this an interesting way to phrase this Disney staying here? Look, we had this this leadership challenge and we acted super decisively to fix the problem.
Okay, the problem was Disney that you put Bob capex, someone who had no experience in In media in front of the biggest media company in the world is CEO and then you, you stated that, you had full confidence in him.
Only six months before, firing him in the dead of night, that's you addressing the leadership challenge, you created The Challenge, Disney's, the one that actually caused this challenge, it wasn't thrust upon them, they created it out of thin air because they didn't have any type of succession plan. So Disney's version of saying that we're addressing challenges is we're creating big problems. Then we're trying to fix the big problems that we just previously
created. That's Disney addressing challenges. Anyways, they go over right here, the new people, they hired and their experience and all their credentials. One of them that worked at Nike, right? And they try to list how great they are. And then what Disney does here is the outline, basically the four different things that
they're working on right now. And again, these are just words, they don't have any real data or anything specific, but they basically say that they're reorganizing the leadership structure. They're trying to become more cost efficient and streamlined. Aligning their operations, they're prioritizing streaming profitability, you know, in addition to subscriber growth. But the big focus is on profitability and they're improving the guest experience by providing more value and flexibility.
So again nice platitudes nice words but there's no actual specifics and any of this. Now in this next section, Disney tries to highlight the differences between Nelson Peltz and their own leadership team and they basically say that Nelson Peltz has no clue what he's doing. He's just some Investor that has no experience Nelson.
Peltz does not understand Disney's business and lacks the skills and experience to assist the board and delivering shareholder value in a rapidly shifting media ecosystem. Okay? So Nelson Peltz has no clue what he's talking about but our people, they have experience they know what they're talking about. That's the message here. Bob Iger, the current CEO of Disney has created significant value for Disney shareholders as CEO and they highlight the time during his tenure.
And Disney tries to paint it. Like, Bob Iger has done fantastic as CEO because since 2005, when he started to 2020, they have five hundred fifty four percent returns here, you can see the chart right there. Five hundred fifty four percent while the S&P 500 has two hundred and forty four percent. So Disney outperform the index over that time period. But here's what Disney conveniently leaves out. What this comparison Bob Iger left Disney literally right
before covid. Like right as covid-19. Starting, that's when he's like I'm bailing. So basically Bob iger's seeing the the iceberg and he's on the Titanic, and he's like, there's a big Iceberg there. You know what I'm retiring? I'm going to just retire right now. There's an iceberg coming. So he jumps off the ship, right? Is this ship is sinking. So Bob Iger bails out right here and then Disney stock price gets completely crushed because of covid.
And the big point that Nelson Peltz made with his criticism is that Bob Iger, never really left. He was still the chairman, he was still involved in the day. A two-day of Disney. So I find it very convenient and misleading. That Disney says that Bob Iger was done with the company right here. When Bob Iger, is the one that put into place. All of these plans, he's the one that bought the fox asset. He's the one that put in, place the streaming services.
He should own the performance of the stock after this. Not Bob capek, they threw it to Bob capek right before, covid happen. And then, even after that, Bob Iger was still in control saying that he was helping get the company through the tough times of And if we look at the performance that doesn't end right before 2020, the stock price crumbled, all those excess gains went away.
And Disney is now, well, below the S&P 500 since the beginning of Bob, iger's, tenure, I think them cutting off their performance right before he steps out, even though he still the chairman and largely influencing the company is highly misleading. So this is Disney's idea of measuring success basically just stop the stock chart as soon as the company's stock price starts to go. Down. And then talk about how good your performance was before then and then compared to other
companies. Again with the same timeline, Disney did great if you stop the stock price right before covid. If you erase the past three years, of course they did good. All the challenges happened after covid. Once they really started to dive into streaming, that's when they started to underperform all of their peers. So all of this is just it's nonsense. They're not even comparing the total time line of the company. Now, moving on, they highlight the achievements of Baba is Or
during his CEO position. And again this is the incredibly I think convenient and misleading timeline of Bob, iger's CEO position. He left the CEO position, February 25th of 20, 20 days before the pandemic hit. So Disneys, conveniently honing in on Bob, iger's, tenure as CEO. When Bob Iger really never left at all. He was the executive chairman and he was still doing day-to-day work at Disney.
He was still involved in the company, so I think That this is incredibly misleading to focus in on this timeline. Now, they mentioned that the market cap 5x under his leadership. I think that's great. He grew the company, but I also would be careful.
A lot of investors, don't realize that market caps of companies can grow without the investor getting returns from it. For example, if a company grows the market cap by double by buying another company through a highly dilute of acquisition, that'll grow the market cap of the company, but the investors since their diluted, they own a smaller Senator of the bigger company, they actually didn't
get any returns. So I wouldn't just think that growing a market cap is the end goal, because a lot of times that doesn't highly correlated with returns long term, track record of value, enhancing merger and acquisition deals. This I agree with Pixar Marvel. Lucasfilm, I think we're fantastic Acquisitions. I'm very on the fence about the 21st Century, Fox deal. I don't personally right now think that was a good acquisition and then they highlight all the capital, they're returning to
shareholders. 89 billion dollars of capital return to shareholders. 66 of it through share BuyBacks and twenty three billion through dividends and they show year by year. The billions of dollars are returning to shareholders. This can also be highly misleading because a lot of times what companies do is they highlight how many BuyBacks they're doing, but they don't highlight how much dilution
they're doing. For example, we can look at Disney on quatrain sites and this tool is available to all Patron members. You can try it out with the link in the description below, but we can bring up the shares outstanding. This shows whether or not they're really returning Capital back to the shareholder. And what we see is that right here is when it started 2006.
This is Bob, iger's tenure. So, he did start doing BuyBacks and the company was reducing the shares outstanding for years returning, Capital back to the shareholders. But then what did they do? They purchased 21st Century Fox and they also not only diluted the shareholder, but they added on a bunch of debt that brings you right back to where the company was at. And 10. So really Disney hasn't Shrunk the share count at all.
Since 2010, the company has the same amount of shares outstanding and even more recently, the share count is going up. It's on a steady Trend upwards and the dividend has been scrapped. So since 2020, they haven't returned any Capital either through BuyBacks or dividends to the shareholders zilch. But again, what they're doing here is they're highlighting only during Bob iger's tenure pretending like he wasn't involved in the company at all from 2020 to 2025.
Three. Now, again, this whole premise, everything Disney's doing where they're honing in on, just the timeline right before 2020. Is so disingenuous, it's so dishonest because during that time period, two years ago, Bob Iger Wanted full credit for running the company through covid. Disney's Bob Iger stays on to steer the company during the covid-19 crisis. He actually went on to a New York Times interview to take full credit of navigating the company through the covid
crisis. Quote, a crisis of This magnitude and its impact on Disney would necessarily result in me actively helping Bob, and the company contend with it. I agree told the New York Times, this was March of 2020. So during covid, Bob Iger was saying that he was in control steering, the company, taking credit for it, in the New York Times. And then, in this presentation, they just leave that out. This had nothing to do with Bob. Iger, this is all Bob capex fault.
I think that's very disingenuous and misleading from Disney. Now they go on to highlight all the amazing deals at Bob Iger did And credit where credit is due. These are amazing deals. Baba hiker did an incredible spree of Acquisitions. He purchased Pixar, Marvel, lucasfilm, and these companies that he purchased, they printed money above the cost of purchase. So he does have a lot to back up his tenure, in terms of his Acquisitions. I think that's a very strong
point in his history. I would highlight that too, and I don't think there's anything dishonest with this part of the presentation. I think that this should be something Disney response with now. Moving on, to the new Deal the fox transaction they say it was critical to better position. Disney to address key secular shifts in the media sector. This is where I'm unsure about this deal. I don't know about the fox deal.
They say that it broadened their portfolio of world-class IP significantly enhanced our content output capacity. Enabled acceleration of global direct-to-consumer expansion ahead of peers, provide a deep bench of experience proven management. They go through all the managers there provided new avenues for growth and attractive. Small regions so they have their thesis there, they can bring up a lot of points for it. And they say, what tree on which is Nelson. Peltz is missing, is the deal.
Facilitated the acceleration of our strategic shift a direct-to-consumer, that's where I don't really agree with Disney. I don't think this really accelerated. Anything the acceleration was happening with Mandalorian that first season of Mandalorian. Got 10 million people signed up the first day and there are all excited about the next episode, Disney's unique. Incredible IP as what God people signed up for Disney plus the
fox deal. I don't think played a pivotal role in that having The Simpsons on Disney plus. I don't think was the big selling point and then they asked Nelson Peltz would Tree on have preferred that a competitor own, the fox asset and honestly, as a shareholder it's a toss-up I don't really know if it's worth it to own the fox asset. When it does this to your share count. It really has to make up a huge difference. They took on so much dilution, they To the shareholder to take
on the fox asset. And then, on top of the dilution, they also took on a ton of debt, the debt spiked up like crazy, two levels, Disney has never seen in its history. The key assets that the fox deal brought Disney was The Simpsons family guy, modern family, all great, but I don't think these are groundbreaking Landmark pieces of assets like Pixar or Marvel. I don't know that you can you can really do the same with the Simpsons. It's been running for 740 episodes we have Deadpool.
Again, these are great, Fantastic Four, good assets but I don't think that Disney really needed them especially for the very high price that they paid. And then they say that his transaction analysis is fundamentally flawed and that they do have synergies, the relying heavily on synergies to make this work estimated two billion dollars of synergies at the announcement and then they point out that the multiple that they paid for Fox was consistent with the president multiples at
the time. So they're saying, we don't really overpay. That's just how things were selling back in. In 18, 2009 teen things were more expensive back then multiples were higher. The market has come down again, I think some Fair points to be
made. Now moving on we have Disney defending their balance sheet, this is a huge point of criticism and I think it's a concerning part of the investment thesis of Disney is they're growing leverage and their balance sheet but here they are defending it and let's go ahead and hear their argument. I'm going to give them a fair shake. So we'll hear their arguments and see if I agree with it. They say right now that the total debt is 46 billion. Dollars and the net debt is 35 billion.
So, I mean, that out debt and cash, they say that what tree on is missing in their analysis, is that the unsecured credit rating a to is stable from Moody's, stable from Fitch and B B+ at SP, pelts calls, this a balance sheet from hell, right? They also say what Tran is missing is that the global pandemic in the year 2020 and 2021 dramatically impacted Disney. And as a result, we Made it that we lost billions and cash and provided operations.
Let me get this straight Disney. So when you're trying to take credit for the performance of the stock you leave out 2020 and 2021, you don't include that in your performance just a few slides ago. You conveniently leave that out.
But later in the exact same slide presentation, when you're talking about things going wrong with the company, then you blame 2020 and 2021. So what is it is 2020 and 2021 Aided in the company's performance or not, because you can't simultaneously leave it out when you're talking about the performance and how great Disney has done relative to the S&P 500 and then use it as an excuse for your horrible balance sheet, but that is exactly what they're doing.
They're using this as the excuse domestic and international parks and Resorts closed over five hundred and twenty eight and eight hundred and seventy-five days collectively. They say that their cruise lines were shut down. Their theaters were shut down. So business was closed and they took on a lot of debt now, ignoring the Elective timeline that Disney picks. We can at least, look at their
measurement of their leverage. I think understates it a little bit when I went through the math on qual, trim and I looked at the exact numbers, the net debt, level to ibadah, I found was around 3.4 times and that is a little bit different than the calculation they came up with and they have a more specific nuanced way of looking at it that I don't necessarily agree with the way that I did. It was very straightforward. So I think either way the balance sheet really isn't a
balance sheet from hell. I think that's Overstating it, but they took on a lot of Leverage. Their leverage has been going up over time. I don't consider that a good Trend at all and they also diluted the shareholder a lot with this fox deal. So both growing leverage and dilution. Both things that I don't think are really benefiting
shareholders. Now they move on saying that and this is one of the most ironic things that they could say try to find the irony in the statement, I'll help you out, pelts has no track record and large cap, Media or Tech. No track record so they're criticizing this activist investor for not having a track record and wanting to offer suggestions and research and insights. Okay. Disney Nelson Peltz has no track record. Neither did Bob capek?
He was the parks operator, and you put them as a CEO of the company and said that you had full faith, you endorsed him. He said that he was the one that was perfect for the job. I'm sorry. The irony is just so strong in them highlighting that you need a large cap media experience when Bob capek, The guy they picked had none of that. So now all of a sudden it's very important when you're talking to
Nelson Peltz now. They do go through and criticize him and try to embarrass him through these. These little Snippets of what he said on his CNBC interview and I'll just give you an example of how misleading this is. Here's one of them, the investment thesis. Okay, so they highlight Nelson Peltz investment thesis, the CNBC anchor said why Disney and they simply highlight pelts saying, why not Why not? That's his investment thesis and they leave it there. Nothing else.
So, that's how Disney's portraying this. Let's go ahead and go to that actual interview. What Nelson Peltz actually said, why not Disney just stopped it there and said that's his entire complaint. That's his investment thesis. This is what he goes on to say, we live skin in the game. You know, we look at a company and we look at this. The, and we say that this is The most Advantage consumer company on the planet and we love it. That's the reason why we're here.
However, the TSR the total shareholder return over 135, 10 years has materially underperformed, the S&P and underperformed the proxy peers that the companies selected. So Disney misrepresented. Now some help, It's they cut it off right after him saying, why not? And they didn't leave in the part where he goes on to say because you have underperformed the Benchmark index on the one-year, the three-year the five year and the tenure timeline, and you've underperformed your own pairs,
which they have. Here's a look at Disney's performance over the 10-year timeline. Disney's, the one in red. The S&P 500 is the one in blue, Disney has underperformed the Benchmark index. And on, top of that they've underperformed at dramatically, the Walt Disney company has a compound annual growth rate of It's 7% while over the same time period, the S&P 500 was 12.4, so they're compounding at roughly half the rate. So, Disney, just highlighting Nelson Peltz his comments as why
not. This is highly misleading. That is not what Nelson Peltz said. He highlighted how you have an advantage company with a wide moat and your underperforming, both the index and your peers. That's why not just why not? That was just two words he said again selectively picking that's what Disney's doing all
throughout this presentation. They're picking their performance right before covid, but when they include the balance sheet there, including covid, as well as an excuse, they're selectively picking what Nelson Peltz said. Making him look stupid by saying, why not? That's why I'm involved in the company. This is so disingenuous now look, I understand why Disney's doing this. I understand why they're hitting back so hard against Nelson Peltz.
They're misrepresenting what he said to make him look stupid.
The reason why is something they don't address in this presentation, which is their excessive compensation, the Disney inside, Both the executives and the directors have paid themselves, hundreds of millions of dollars while underperforming both their peers and the index over the past decade, that's what's been going on and Disney does not like that Nelson. Peltz is coming in and highlighting their excessive pay compensation amidst their under
performance. So that's something I can completely see why they want to misrepresent him and make him look dumb. He's going in and he's pointing out that they're over paying themselves. But overall, I would highlight this response from Disney as misleading. Leading, they selectively chose timelines that serve them when they're talking about performance highlighting their performance, right? Up until 2020 covid, and then ending it there.
But then when they're talking about their balance sheet and their excessive leverage, then they include 2020 and 2021 as an excuse, they ignore, the fact that Bob capek even exists that they chose him that they endorsed him, that they had poor judgment, and who they put in place. And when they criticized, Nelson Peltz for not understanding a big Media company, they ignore the fact that they chose Bobbie.
Hey, Peck as their executive, who is someone that didn't understand or have experience with a big Media company. And when they actually did address Nelson Peltz has specific criticisms, they grossly took his words out of context to intentionally, try to embarrass him. And the one thing that they left out of this presentation, that they didn't address at all, is there excessive pay for themselves amidst under performance? They conveniently just left that part right out.
So overall I thought the presentation was misleading and I hope that Nelson Peltz does get a board seat. That's all for this episode. Hope you enjoyed seeing the next one.