The Most Magical Proxy Battle

By Stephanie Weaver

The biggest story of the 2024 proxy season was the thwarted attempt of activist investor Nelson Peltz and Trian Fund Management LLP (“Trian”), an alternative investment management fund that he co-found­ed, to secure two board seats on the Walt Disney Company (“Disney”) board of directors.

The $600-million battle between Peltz and Disney management was the most expensive proxy fight in corporate history. Analyzing the strate­gies employed by each party provides insights for future proxy battles at major public companies. While not all possess Disney’s financial re­sources or media prowess, they can adapt lessons from this conflict to tailor their fighting style to their specific strengths and the needs of their retail investors. Although Peltz did not succeed in obtaining the board seats, ultimately this battle gave Disney a push to institute changes that could enhance its stock performance.

On March 4, 2024, Trian published a 133-page white paper manifesto entitled Restore the Magic at The Walt Disney Company, calling for significant reform at Disney. A group put together by Trian held roughly $3.5 billion in Disney stock at the time. Trian aimed to have Peltz and Jay Rasulo, a former CFO at Disney, appointed to the company’s board. Its manifesto demanded an overhaul of the board and a reimagining of Disney’s business strategy. One of Peltz’s main criticisms was that the company did not have a succession plan for CEO Bob Iger’s eventual replacement. This was evidenced by the revolving-door tenure of Bob Chapek, who was appointed as Iger’s successor in 2020 and ousted in 2022, after which Iger returned to his old job.

 Trian had launched a previous campaign advocating for numerous changes at Disney in 2023. While Trian eventually withdrew from that proxy contest, it spurred Disney to launch a series of initiatives that aligned with Train’s suggestions and caused its stock to rise significantly. By proactively and preemptively responding to potential criticisms from Trian’s 2024 campaign, Disney positioned itself to effectively counter some of the expected negative feedback. While other companies may not have the advantage of foreseeing a detailed preview into a future campaign, maintaining regular meetings with shareholders, especially activist ones, being open to feedback and responsive to calls for change can significantly bolster a company’s defense against future proxy fights.

 As the battle unfolded, both sides launched campaigns to garner support from institutional and retail investors. In a typical proxy fight, institutional investors are crucial, as they hold the majority of the shares. Individual retail investors often side with management if they vote at all. However, Disney’s sub­stantial retail shareholder base, which accounts for up to 40% of its shares, primarily consists of investors who are passionate about the brand. This loyalty translates into strong opinions about the company’s management, making it important to meaningfully engage with these investors.

Peltz reached out to large institutional investors with targeted influence campaigns while using mass media to engage Disney’s enormous retail investor base. His strat­egy included promoting Trian’s RestoreTheMagic.com website and coordinating online interviews with Peltz and Rasulo alongside lengthy profiles of Peltz in the New York Times and the Financial Times. Peltz attempted to attract retail investors unhappy with the company’s recent con­tent and political stances. He received endorsements from influential entities such as Institutional Sharehold­er Services (“ISS”), a shareholder advisory firm, current and former directors of firms including Mondelez Interna­tional Inc., Procter & Gamble Co. and Janus Henderson Group Plc, proxy advisor Egan-Jones and Disney investor Neuberger Berman. Although not a shareholder, Elon Musk expressed support, indicating that he would invest in the company if Peltz joined Disney’s board.

Disney shelled out tens of millions of dollars to advertise on financial news websites and popular Hollywood pod­casts and secured endorsements from high-profile, influ­ential investors, including the legendary Hollywood film­maker and largest individual shareholder in the company, George Lucas, the shareholder advisory firm Glass Lewis & Co., activist investor ValueAct Capital Management, JPMorgan Chase & Co. CEO Jamie Dimon, Laurene Powell Jobs and members of the Disney family. Disney also garnered support from its biggest share­holders, institutional investors Vanguard Group, Inc. and BlackRock, Inc.

Disney launched a website providing updates on the implementation of its strategic plan, which was initiated after Trian’s first proxy contest in 2023. This website featured a video starring iconic Disney characters en­couraging shareholders to use Disney’s white proxy card and only vote for Disney’s nominees. With Mickey Mouse and other icons at its disposal, Disney played to its strengths with lifelong fans of its media and theme parks. Ultimately, 75% of Disney’s retail shareholders supported the company’s slate.

As retail investment continues to grow, companies and activist investors alike can benefit from forming strate­gies for creative engagement with retail investors. Disney effectively engaged with its shareholders by leveraging its expertise and lovable characters. It will be interesting to see what areas of expertise other large public companies might be able to bring to the table in future proxy battles.

 Previously, shareholders would choose between two slates of board candidates proposed by companies or activist investors. A new SEC “universal proxy rule” that allows shareholders to more easily vote for a mix of nominees from both sides may have played a role in the Disney outcome. According to the April 4, 2024 Dealbook News- letter from the New York Times, “because each side was fighting against specific individuals, instead of against an entire slate, attacks became more personal. … The new system also enabled another activist investor in Disney’s stock, Blackwell Capital, to campaign against Peltz, dividing the opposition.”

 Disney’s proxy contest was conducted under a plurality voting standard, meaning the nominees with the greatest number of votes would win the available board seats. Trian recommended that shareholders vote for its two nominees and withhold on two Disney nominees, Michael Froman and Maria Elena Lagomasino, while labeling the remaining Disney nominees as acceptable. Despite Lagomasino and Froman receiving the lowest support among the Disney nominees,ultimately Trian’s strategy did not garner enough support to secure enough votes for Peltz and Rasulo. A better strategy may have been to have shareholders vote for both Trian’s nominees while not voting for any company nominees.

 While Peltz seemed to be gaining momentum in the lead- up to the vote, his efforts were ultimately unsuccessful. On April 3, 2024, he lost, garnering only 31% of votes cast. Meanwhile, Iger received 94% support, and every one of Disney’s 12 nominees was elected.

 In the end, it’s not all bad news for activist investors like Pelz, particularly if their ultimate goal is to spur change in the company and drive up the stock. While he lost the proxy battle, Disney did implement a number of meaningful changes, and its stock rose 30% post vote. In a post-vote statement, Trian said it is “proud of the impact we have had in refocusing this company on value creation and good governance.” Perhaps the magic was (at least in part) restored after all.