During last January’s episode of the “activist investor Nelson Peltz vs. Disney” drama, we exposed Peltz’s embarrassing track record of investment underperformance. Peltz abandoned his activist campaign against Disney soon afterward, with Disney CEO Bob Iger pledging cost cuts on his first earnings call of the year.
In the time since, the challenges have piled up for Disney, with shares sinking to 2014 lows amidst a summer of bad press for Iger. Perhaps smelling weakness, Peltz is now ordering up a sequel and opportunistically threatening another activist campaign against Iger.
But the winds may be changing once again. Peltz is taking on water with the slow drip of one embarrassing revelation after another, while Disney may be turning a corner. It seems like the performance of the genuine wizard of Hollywood is leaving behind the financier challenger with his smoke-and-mirrors antics.
Peltz is putting his mouth where someone else’s money is
Just last week, it emerged that Peltz’s Disney ownership stake is largely illusory, as he does not actually own the number of Disney shares initially suggested. Rather, most of "Peltz’s shares" are owned by longtime Iger nemesis Ike Perlmutter, who was unceremoniously fired from the Disney-owned Marvel Entertainment as part of cost-cutting measures. Perlmutter was already in close cahoots with Peltz informally during Part I anyway, so formalizing their co-conspiratorship adds nothing new, and Peltz hardly enters Part II with much new skin in the game. Nothing screams confidence quite like putting your mouth where someone else’s money is.
Given Peltz’s aptitude for the illusions of Tinseltown, it is a shame that he went into finance instead of show business. There is no denying his antics get attention, as his genius for entertainment exceeds his investment performance. Specifically, when we updated our original January analysis with data through November 2023, we found that the underperformance of companies that have had Peltz on their board has somehow gotten even worse. Our original analysis can be viewed by clicking here.
No triumphs for Trian
As holders of Disney ourselves, we are not exactly inspired to entrust our shares to Peltz’s control. The stocks of every company that currently has Nelson Peltz as a board member–Wendy’s, Unilever, and Madison Square Garden Sports–have dramatically underperformed the S&P 500 during the entirety of Peltz’s tenure by an average of ~6% annually, representing billions of dollars of lost shareholder wealth, and this underperformance has worsened since our first analysis in January. Clearly, having Peltz on your board seems to be more value-destructive than value-additive.
We approached Peltz with our latest findings, which he read, but even after a few days, we still haven't got a response.
Nevertheless, Peltz thinks he can add value to Disney’s board. Rumors are that the activist investor will be publishing a report making his own case in short order, and he’ll surely showcase his stint on the board of P&G (which ended in 2021) as a model of success amidst much self-manufactured publicity buttressed by armies of hired PR flaks and friendly journalists. However, the reality is that a majority of companies who have had Peltz on their board have underperformed the S&P index during the entirety of Peltz’s board tenure, with no less than seven examples of significant underperformance, as we reveal, and no less than 11 examples of significant underperformance if we count companies with a non-Peltz Trian representative on the board, including companies as varied as Mondelez, Sysco, Janus Henderson, Legg Mason, GE, BNY Mellon, and Family Dollar. Apparently, Peltz’s performative genius does not always translate into financial results.
Even in the aberrational cases when Peltz does succeed financially, such as his 50% profit from Pepsi when Indra Nooyi was CEO, the companies often succeeded despite, not because, of his freewheeling advice. His advice to spin off Frito-Lay and merge it with Mondelez was fortunately ignored. Having sparred with Peltz for decades now across several high-profile proxy fights, I know this was hardly an isolated occurrence.
Et tu, Ed?
These investment performance woes are not unique to Peltz. In a candid CNBC interview, when asked by David Faber about activists generally underperforming the S&P 500, which we revealed earlier this year, Peltz son-in-law and Trian co-founder and former Chief Investment Officer (until July) Ed Garden readily admitted that activists have struggled and need to "find new ways of adding value."
What is unique to Peltz is the constellation of disgruntled former Disney employees with axes to grind who have flocked to his side, including–but not limited to–Perlmutter. Peltz’s campaign against Disney reeks of a personal vendetta against Iger rather than a compelling strategic vision for value creation.
Turning Disney around
Sure, Iger may have gotten off to a slow start in his second stint on the job, but Peltz’s campaign feeds perfectly into the cynical narrative surrounding the iconic Disney CEO, pushed by constant leaks to pliable journalists.
Though Iger has only been on the job for one year, some are already declaring he has failed in his comeback and should be replaced. These sideline critics forget that returning CEOs often require upward of two to three years to turn around their businesses. For example, a year after Howard Schultz returned as CEO, Starbucks stock was down 48.5%–but after three years it was up 63%. Similarly, in the first year after Michael Dell returned to Dell in 2007, the stock fell 17.3% but then tripled in value. Even the legendary Steve Jobs took three years after his 1997 return to get Apple stock soaring 400%. Iger’s prior track record of 600% total shareholder returns suggests he deserves a much longer leash.
In fact, now a year back into the saddle, Iger appears on the cusp of takeoff as his strategic vision for Disney finally emerges into clearer focus. After a year spent fixing the numerous issues that he inherited from his predecessor and evaluating options, Iger is now pivoting toward building for the future and driving profitability.
With Disney reporting earnings this week, Wall Street analysts are bullish with almost universal "BUY" ratings. Morgan Stanley and JPMorgan have hailed Iger’s focus on increased streaming profitability, growth in theme parks, and decluttering the content pipeline while resisting selling linear assets too cheaply. Bank of America is advising to "invest in the magic."
Iger is turning around Disney’s businesses while simultaneously cultivating a dream team for his strategic brain trust. His kitchen cabinet includes potential successors, ranging from internal up-and-comers such as Dana Walden, Alan Bergman, Josh D’Amaro, and Jimmy Pitaro, to returning Disney veterans such as Tom Staggs and Kevin Mayer, in addition to the highly regarded incoming CFO Hugh Johnston from Pepsi, who has previous experience dealing with Peltz. The face-off between Disney and Florida Governor Ron DeSantis seems to be trending toward another win for Iger as DeSantis plummets precipitously in the polls. Clearly, if you were investing a dollar in either Disney or DeSantis, Disney is the far better bet.
Earlier this year, when Iger unveiled compelling plans during Disney’s first-quarter earnings call, Peltz had the wisdom to call off his activist campaign within minutes during a live CNBC hit in a made-for-TV moment. But not every good show needs a sequel. If the wizard of the magic kingdom pulls another rabbit out of the hat, it might be best for everyone to call off the sequel before production gets too far along. If not, Peltz will have his work cut out for him at the proxy ballot box as a diversionary illusionist.
Jeffrey Sonnenfeld is the Lester Crown Professor in Management Practice and Senior Associate Dean at Yale School of Management. He was named “Management Professor of the Year” by Poets & Quants magazine.
Steven Tian is the director of research at the Yale Chief Executive Leadership Institute and a former quantitative investment analyst with the Rockefeller Family Office.
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