Walt Disney Co. (DIS) shares jumped higher Monday after activist investor Dan Loeb unveiled a new position in the media and entertainment group while calling for changes to the group's board of directors and the spin-off if its ESPN sports network.
Loeb said his Third Point LLC hedge fund, which manages around $14 billion in assets, will push for cost cuts and debt reduction, as well as the purchase of Comcast's (CMCSA) 33% minority stake in Hulu prior to the contractual deadline in early 2024. The firm also wants to initiate what it calls a "board refresh", noting what it called "gaps in talent and experience as a group that must be addressed".
The biggest change sought by Third Point, however, is the spin-off of ESPN, which Third Point says will alleviate leverage at the parent company while allowing a stand-alone ESPN the flexibility to pursue increasingly expensive sports rights and expand into the lucrative sports betting market.
Loeb called ESPN a "great business that currently generates significant free cash flow", and supports Disney+ subscriber growth with its bundled sports offering.
"Despite these advantages, we believe that a strong case can be made that the ESPN business should be spun off to shareholders," Loeb wrote in a letter to Disney CEO Bob Chapek. "As a result of this transaction, both companies will attract shareholders seeking the respective qualities of each company, allowing the Disney parent multiple to expand as its earnings growth rate increases and the remaining business is no longer haunted by the specter of cord cutting."
"While I understand you have considered this idea in the past, we urge the Company to retain advisors to reassess the desirability of the transaction in the current environment," Loeb added.
Disney shares were marked 1.9% higher in early Monday trading immediately following news of the Third Point position to change hands at $123.91 each.
Last week, Disney said ESPN+, its sports-focused streaming business, ended the third quarter with 22.8 million paid subscribers, with average revenue per user rising 1.8% from last year to $4.55.
Overall, Disney said adjusted diluted earnings for the three months ending in June, the group's fiscal third quarter, came in at $1.09 per share, up 36.25% from the same period last year and firmly ahead of the Street forecast of 97 cents per share.
Group revenues, Disney said, rose 26% to $21.5 billion, topping Street forecasts, while overall subscriber totals for its Disney+ hit 152.1 million, topping analysts' estimates by around 3 million.
