The vote at Disney’s shareholder meeting matters, but the aftermath is even more important.
Wednesday’s showdown at Walt Disney (DIS -3.13%) isn’t shaping up to be much of a fight. The media giant’s current board members continue to garner support from some of its largest shareholders, but leave it the leading entertainment stock to inject some drama before the end credits roll.
A New York Times report — hours before the final votes are tallied — suggests that the proxy battle has “evolved into a much closer contest” than initially expected. A Financial Times update claims that “the vote has remained closely fought, even in its final stages.”
Don’t bother popping the popcorn. The real story here has never been about the actual shareholder vote. What matters here is what Disney will do after the proxy battle is over. Leave it to Disney to close with a cliffhanger to cash in on the sequel.
Rowing the vote
There is no reason to think that Disney won’t win Wednesday afternoon’s vote by a landslide. Many of Disney’s largest institutional investors and even a few prominent individual shareholders have voiced their support for CEO Bob Iger’s turnaround strategy. In just the past few days Vanguard, BlackRock, and T. Rowe Price have backed the current slate of board directors.
Celebrities including George Lucas and Steve Jobs’ widow, Laurene Powell Jobs, publicly supporting the old guard wasn’t just about the star power. Lucas and Jobs also happen to have sizable stakes in Disney after the Lucasfilm and Pixar acquisitions, respectively.
This isn’t to say that activist Nelson Peltz hasn’t rallied support. He had two prominent proxy advisory services back his campaign. Calpers — the California pension fund for public employees — is also backing Peltz into the Disney boardroom. Calpers owns a significant 6.6 million shares of Disney, but we’re talking about a company with more than 1.8 billion shares outstanding. Peltz and Calpers are just 2% of the shareholder base. Time is running out to get another 48% on their side.
Disney has spent roughly $40 million on a campaign to rally shareholders to vote for the existing board members. If you’re a Disney shareholder you’ve probably continued to receive pitches to vote. It doesn’t mean that Disney is desperate to the point where it thinks it will lose. Disney just wants a convincing win.
Image source: Disney.
Peltz can still win even if he loses. He’ll get a chance to speak at the annual shareholder meeting on Wednesday. If he resonates with investors — and the boardroom — why wouldn’t Disney champion some of his better ideas? It won’t matter if he winds up with just 7% of the vote or 37% of the vote.
It’s fair to say that Peltz will have more say and sway in defeat if Disney stock falls after the final votes are announced. He can argue that the stock was surging in recent months — hitting another 52-week high last week — in anticipation of a shakeup rather than progress that Disney was making on its recovery efforts.
Even if Peltz falls woefully short, his questions of Iger’s succession plans will get louder, especially after how the handoff was fumbled four years ago. Disney won’t be taking a victory lap. It will be running because it doesn’t have a choice at this point. If Disney+ doesn’t turn profitable by the end of this fiscal year or if the House of Mouse falls short of its raised cost-cutting goals there will be a price to pay for telling investors what they wanted to hear now. If that’s the case you can be sure that next year’s proxy battle will be far more interesting.
Rick Munarriz has positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends T. Rowe Price Group. The Motley Fool has a disclosure policy.
