US Markets
Wednesday, November 15th, 2023 2:58 pm EDT
Key Points
ValueAct’s Strategic Investment in Disney:
ValueAct Capital has acquired a significant stake in Disney, a move that was not previously disclosed in filings or media reports. The activist investor, known for its expertise in corporate governance, has been in dialogue with Disney’s management regarding this new investment.
Focus on Disney’s Theme Parks and Consumer Products:
ValueAct believes that Disney’s theme parks and consumer products businesses, contributing $10 billion in EBIT (earnings before interest and taxes), are alone worth the low $80s per share. The theme parks unit is highlighted for its high return on capital, allowing Disney to effectively monetize its intellectual property. This valuation implies almost no value for the rest of Disney’s business, including ESPN, theatrical releases, Disney+, Hulu, and television networks.
Strategic Opportunities for Revenue Growth and Board Representation:
With expertise in both technology and media, ValueAct sees strategic opportunities for Disney in bundling, pricing tiers, and advertising strategies. They draw parallels with their successful involvement in companies like Salesforce, Microsoft, Spotify, and the New York Times, where such strategies led to increased revenue, higher average revenue per user, and improved advertising technology. ValueAct may seek a board seat at Disney, leveraging its history of creating value through board representation and playing a constructive role in CEO successions. This is particularly relevant as Disney faces a proxy fight from Nelson Peltz and Trian Partners, providing an unexpected alternative for the Disney board to consider.
ValueAct Capital has acquired a significant stake in Disney, a move not previously disclosed in filings or media reports. Disney, with a market value of $167 billion ($91.07 per share), operates globally through two segments: Disney Media and Entertainment Distribution, and Disney Parks, Experiences, and Products. ValueAct, known for its corporate governance expertise and with a history of successful investments, began acquiring Disney shares during the WGA and SAG strikes, making it one of their largest positions.
ValueAct’s average cost per share is in the low $80s. The activist investor has engaged in dialogue with Disney’s management, expressing a belief that Disney’s theme parks and consumer products businesses, generating $10 billion in EBIT (earnings before interest and taxes), are alone worth the low $80s per share. This valuation implies almost no value for the rest of Disney’s business, including ESPN, theatrical releases, Disney+, Hulu, and television networks.
The article notes that Disney’s theme parks have a high return on capital, allowing the company to monetize its intellectual property effectively. ValueAct sees this business as uniquely positioned, as it is not threatened but enhanced by technology. They point to Disney’s Genie app, which improves the visitor experience in the parks, as an example of technological enhancement.
The analysis suggests that the recent disruption in the streaming industry, where companies focused on acquiring customers at any cost, has shifted. With rising interest rates and inflation, companies are now prioritizing profitability over customer acquisition. This change in dynamics favors companies like Disney, with a strong brand and an established business model. ValueAct’s experience at companies like Salesforce, where margins increased from 18% to 32%, aligns with Disney’s announced aggressive cost-cutting plan.
ValueAct has a track record of advocating for and assisting in creating bundles, pricing tiers, and advertising strategies that enhance revenue for its portfolio companies. They believe Disney, through intelligent bundling of its products, could generate up to $15 billion of EBIT for its media assets, potentially leading to a Disney stock price as high as $190 per share.
The article also suggests that ValueAct may seek a board seat at Disney. Given their history of amicable and constructive collaboration with boards, this move could be welcomed. The report notes that having a shareholder representative on the board would be particularly helpful for Disney as it navigates CEO succession, a significant priority for the board. The article concludes by highlighting the unexpected proxy fight Disney is facing from Nelson Peltz and Trian Partners, offering the board an alternative they may not have anticipated.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/11/15/activist-investor-valueact-has-been-building-a-stake-in-disney.html
