Disney Under Siege | Restore the Magic | 1
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Wondery Plus subscribers can binge all episodes of Business Wars Disney Under Siege early and ad-free right now. Join Wondery Plus in the Wondery app or on Apple Podcasts. New York City, the summer of 2015. Ike Perlmutter raises his eyes and looks across the dinner table at the man sitting opposite him, Disney CEO Bob Iger. Iger's flown in from California to dine with him, and his presence here has set Perlmutter's spidey sense tingling.

Perlmutter is the 72-year-old head of Marvel Entertainment. Six years ago, Iger convinced him to sell Marvel to Disney. Now, Marvel superheroes rule Hollywood. But friction's growing between the two men. Perlmutter's eyes meet with Iger's. "So, what is it you want to discuss?" "We need to talk about Kevin." Kevin is Kevin Feige, the movie executive who turned Marvel into box office gold. Hollywood loves him.

But Perlmutter thinks he's a reckless spender with a liberal agenda. And what about Kevin do you want to discuss? You keep putting roadblocks in his way. He's one of the most talented executives in filmmaking history, and you treat him like an adversary. You won't give him the budgets he needs. Needs or wants?

The movie budgets are totally excessive. He has to go. So you keep saying, but you never have any idea who you would replace him with. I'm still looking for the right person, but that's no reason to overspend. Perlmutter might be a billionaire, but he's thrifty. He still eats $3 lunches at Costco and fishes paperclips out of the trash to save money. We've been over this, Ike. Hollywood is not a normal business. It requires big risks.

Yes, it's easy to get swept up in the glamour and lose perspective, but it's just as easy to grow jaded and lose all perspective too. You're making Kevin sick with stress. You're driving him out of the company. And I can't have that. Uh, he's spoken to you. What's going on between you and Kevin can't continue. Things have to change. Change?

Kevin and Marvel Studios will now answer to Walt Disney Studios, just as Lucasfilm and Pixar do. You'll still run the rest of Marvel Entertainment. You're making a mistake. You can't trust Kevin. He's loyal only to himself. Do you have an alternative solution? No. No, I don't. Then you've made my case for me. So, are we agreed? Do I have a choice? Not really. Then I agree.

Perlmutter resumes eating his meal while seething inside. He's lost control of Marvel's biggest business and the animosity between him and Iger will only grow from here until one day, years from now, the differences between them will erupt into the most expensive war for corporate control in US business history.

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From Wondery, I'm David Brown and this is Business Wars. In this season, we track billionaire investor Nelson Peltz's attempt to strong-arm his way onto Disney's board. It was a $65 million argument launched as an ailing Disney struggled to recover from the COVID pandemic and a run of movie misses. At stake was the future of the Walt Disney Company, the media colossus behind Marvel, ABC, ESPN, Pixar, and much more.

Pelz's Siege of the Magic Kingdom would see mud slung, thousands laid off, careers crushed, and Hollywood stars sparring with Wall Street financiers. This is Episode 1, Restore the Magic. It's July 2022, seven years since former Disney CEO Robert Iger stripped Ike Perlmutter of control of Marvel's movie output. And at the Disney Hotel New York at Disneyland Paris, activist investor Nelson Pelz is eating lunch.

Through the window, he sees tourists reconnecting with the theme park after two years of COVID lockdowns and social distancing. Peltz is an 80-year-old billionaire with white stubble and expensive round spectacles. He runs the hedge fund Tryin Partners and has a rep as a corporate troublemaker. Peltz makes his loot from big companies with depressed stocks. When he finds one, he buys in big and uses his stake to demand changes that'll boost its stock price.

And once he's achieved that, he cashes out many millions richer. He's already done this to Heinz, Wendy's, General Electric, and Family Dollar. And today, he's sniffing out a fresh target. Pelts looks up from his meal and at his lunch companion, Bob Chapek, the bald-headed CEO of Disney. "'What's that?' Chapek smiles. "'It's the Dream and Shine Brighter Parade. It celebrates 30 years in Paris.'" "'Good to know Disney's still got something worth celebrating.'"

Chapek ignores the dig but he knows what Peltz is getting at. Chapek replaced Iger as Disney CEO in February 2020. A few weeks later, Covid hit. The pandemic shut Disney's theme parks, put movie production on ice and cancelled the sports games ESPN airs. And the company's yet to rebound. Pixar and Marvel movies have gone from blockbusters to box office bombs.

Disney+ is losing billions trying to catch up with Netflix and its TV networks are losing viewers to streaming platforms. Disney's also got itself tangled in America's culture wars. Four months ago, Florida banned schools from discussing sexual orientation or gender identity with children under 10 years old.

But the company's decision to say nothing about the so-called "Don't Say Gay" law caused uproar among Disney employees. So, JPEG tried to calm the situation by criticizing the law. That infuriated the band's supporters. And now, Florida Governor Ron DeSantis is moving to strip the Disney World Resort in Orlando of its special tax status. All of which has caused Disney stock to fall by a third since the start of the year.

So now, after some back-channel chats with his next-door neighbor, Marvel Entertainment chairman Ike Perlmutter, Peltz has flown to Paris to see if Chapek is someone he can work with. Bob, Ike and I feel for you. We do. You were dealt a bad hand. Well, COVID challenged every business, but we've turned the corner. Really? The evidence is right here in this park. In the crowds outside. I don't mean COVID.

I mean what you inherited from Bob Iger. A flawed streaming strategy, the overpriced Fox acquisition, runaway movie budgets, all of which drags on the stock price. Our streaming strategy is essential. Broadcast and cable TV viewership is in decline. But I'm sure you have views on what we should be doing. You bet I do. I believe there's billions of cost savings to be made. The business is too centralized and there's not enough cost discipline.

But my most pressing concern is that if these problems keep on going, the board might panic and bring Iger back in as CEO. It's a worry Chapek shares too. Iger's shadow looms large over Disney. During his 15 years as CEO, Disney's market value grew more than fourfold. He was always going to be a hard act for Chapek to follow. And it doesn't help that Iger spent his retirement questioning his handling of Disney. Chapek leans forward. What are you suggesting, Nelson?

That we work together. I want to make a major investment in Disney. I'd like to help you get things back on track. Huh. You want a board seat? I don't intend to invest hundreds of millions of dollars in return for zero influence. Representation on the board is a must, but you know I have the experience. Not in media. Business is business. The need to deliver value for stockholders doesn't change just because you make movies.

You think the board is open to me joining? Ike is ready to help you make the case. Not everyone likes Ike. They remember his antagonism toward Iger and his attitude to Kevin Feige is a real problem. The board sees Kevin as crucial to Marvel's success. Also, your reputation for starting proxy fights will put them all on edge. I don't want to start a proxy fight.

Chapek pauses to think. Pelz seems like someone he could work with, and he could do with an ally in the boardroom. Also, it's better to get on Pelz's good side than to risk a distracting and high-profile proxy war. Okay, Nelson.

"This is interesting, but as you know, I don't decide who gets to join the board. I'm just the CEO." "Of course." "But I will relay our conversation to the board and encourage them to explore it further with you." "Well, thanks. That's all I'm asking for." Peltz spends the next few months trying to sell his vision of change to Disney's board members and senior executives. In parallel, Ike Perlmutter starts pushing internally for Peltz to be offered a seat on the board.

But as summer turns to fall, it becomes clear to Peltz that Disney's board is in no rush to invite him in. They're also losing faith in Chapek's leadership. It's November 8th, 2022, and the Walt Disney Company is holding its fourth quarter earnings call. And in the Manhattan offices of Tryon Partners, Peltz is listening in with his analysts and traders. Through the speaker in the middle of the table, Chapek is delivering an upbeat report about Disney's performance.

Fiscal 2022 was a strong year. We continued our journey of telling incredible Disney stories. Those efforts resulted in record annual results at our parks, experiences, and product segment. The try-in team exchanged looks of surprise. They have Disney's results in front of them, and to them, the numbers don't justify Chapek's cheery assessment.

Disney's earnings per share are 25 cents below expectations. The fourth quarter losses from Disney's streaming platforms have more than doubled to $1.5 billion. Profits have flatlined. Peltz turns to one of his employees, who's hunched over a laptop tracking the market reaction. Where's the stock heading? Jopping like a stone. Down almost 10% since this morning. Peltz nods. He's prepared for this moment.

He's got a war chest of half a billion dollars he can use to purchase Disney stock. His team has already identified the ideal price to buy at. Tryon's computers are primed to scoop up shares in an instant. The employee looks up from his laptop. "Stock just slipped beneath $90. What's the call?" Pelts doesn't reply immediately. After all, this is a half a billion dollar decision and the money isn't his.

It's money other investors have entrusted to him and Tryon to manage. He refocuses on the earnings call where Chapek is still painting a rosy picture for Wall Street. We believe that we've got a formula that gives us great confidence that we're going to achieve. That's all Peltz needed to hear. Disney is in denial. Time to crank up the pressure. He looks at his team. We buy. A few hours later, Disney headquarters, Burbank, California.

In his office, Chapek steadies himself and reaches for his desk phone. He's spent the day trying to sell Disney's results as a good news story, but Wall Street isn't buying it. Disney's stock is down almost $10, wiping billions off its market value. And now, Nelson Peltz is on the phone. Chapek carefully picks up the receiver. Nelson, sorry for the wait. What can I do for you?

I'll be quick. I wanted you to know that we've taken a position in Disney. How big a position? $300 million, and we expect to continue buying over the next 24 hours up to around $500 million. Chapek knows. This is the first step towards a proxy fight. The term for when an outsider like Pelz attempts to convince stockholders to replace or curtail the power of a company's existing leadership. Chapek plays it cool.

Well, your vote of confidence in the Walt Disney Company is welcome. Thank you. But now that we are a major stockholder, we do expect our voice to be heard. We want a seat, maybe two, on the board. Today's results only reaffirm the need for major restructuring. But we can, and we will, discuss that in more detail in the days to come. I'm sure. Bye now. Chapek hangs up and closes his eyes.

He knows that after today's events, he's on borrowed time. Disney is in crisis and his position's in jeopardy. The board is probably already discussing whether to fire him. His senior executives will be wondering if they will get a shot at replacing him. Allying with Peltz might be his only way to survive now. A few days later he flies to Palm Beach, Florida. There he meets with Peltz at his Oceanside mansion.

Then, he heads next door to meet Pelts' neighbor and chief advocate within Disney, Marvel Entertainment's Ike Perlmutter. But when Disney's board members learn of the unapproved talks, they ban Chapek from further unchaperoned contact with Pelts. And that's because the board of directors has another solution in mind. The solution Pelts, Perlmutter and Chapek dread most. Bringing back Bob Iger.

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And in his white-walled mansion in Brentwood, Los Angeles, Bob Iger is on edge. It's almost a year since he retired from Disney's board of directors, but now he's got a call scheduled at 3 p.m. with Susan Arnold, the lead independent director on the board. The 71-year-old former Disney boss and Arnold fell out with each other two years ago, so the sudden request for a call has set his imagination whirring. Iger checks his watch. It's three. The phone rings.

Iger resists the temptation to answer immediately. He lets it ring two more times, then answers. "Susan!" Iger listens as Arnold explains that the Disney board of directors has lost confidence in Chapek. Then she asks the question he hoped to hear. "Will I come back?" "Yes." There's a moment of surprise silence on the other end of the line. Arnold didn't expect Iger to say yes quite so fast. Iger fills in the gap.

I have three conditions, though. First, I want it to be announced Monday at the latest. It's too big a secret for me to keep. Arnold says the board can make that Monday announcement happen. My second condition is that my return has to be for a limited period. One year. Arnold pushes back. One year isn't enough time to prepare a successor CEO. Disney wants Iger back for at least two years. Iger thinks for a moment, then relents. Okay, two years then.

"My final condition is that I want to serve without pay. I don't want people thinking I'm doing this for the money." Arnold pauses again, surprised by the request. Then she says she'll need to discuss that with the board. That Sunday, Disney's board of directors meet online without informing Chapek. They agree to fire Chapek and reinstate Iger. They also reject Iger's request to work without pay.

After the board meeting, Arnold calls Chapek and tells him he's fired, effective immediately. Four hours later, news breaks that Iger's back, but he's returning to a world of trouble. Disney's fighting fires on multiple fronts, and he also knows that Ike Perlmutter will now be doing all he can to help his friend Nelson Peltz break into the boardroom. It's January 10th, 2023, and on a Zoom call, last-ditch talks to avoid a proxy war are underway.

It's been two months since Iger returned to Disney, but the change in leadership hasn't put Peltz off. In fact, he's digging in and increasing his stake in Disney, which now stands at $800 million. So now, Iger and Disney's top executives are trying to find a way to make nice with Peltz and the try-in team. Iger tries to convince Peltz to give him more time to make changes.

"'Nelson, we're open to working constructively with you, and we welcome any ideas that drive shareholder value, but we need time to deliver change. A proxy fight would be a huge distraction from that.' Pelts adjusts his glasses and leans toward the camera, his face filling the screen. "'The way to avoid a proxy fight is to add me to the board. We can help. Your stock is at an eight-year low. When I look at Disney, I see a company in crisis.'

I feel that's an exaggeration, but maybe we can talk specifics. I'd love to. Let's talk about streaming. You're struggling to deliver profits despite having similar revenues to Netflix and the advantage of best-in-class franchises. Why? I'll tell you why. Because Netflix is more cost-effective in its productions. Disney lacks cost discipline. That's why your streaming economics are so bad.

We're already taking action on costs. There's a hiring freeze in place and more to come. But we need time and the ability to focus on what's important. A proxy battle with you will be a distraction from what's important. Then avoid the battle by putting me on the board. Every company whose board I've served on, and I have served on many, has outperformed the S&P 500. Look, we can help.

We've offered quarterly meetings with management and the board as well as an information sharing pact. We can keep talking, but we need you to sign a standstill agreement saying you won't mount a challenge. It's impossible to work together while you're threatening us. Now, will you sign that? No. No, she... Robert. This needs resolving. We have skin in this game, and the deadline for this year's board nominees is close.

I will be on that ballot, one way or another. The Zoom call ends without an agreement, and war between Tryon and Disney imminent. The next day, business news network CNBC breaks the news that Peltz will mount a campaign to get a seat on Disney's board of directors.

Nelson Peltz is going to try to get on the board of directors at Disney because they said, we're not interested in you joining the board of directors of Disney, Mr. Peltz. He's a significant shareholder. Last count, maybe $800 million worth of stock. They've known he's been there for some time. In fact, Bob Chapek, the former CEO, is aware of Peltz's presence, as was the board. And then the board did get rid of Mr. Chapek, but that apparently wasn't enough to satisfy Mr. Peltz.

The next morning, Peltz's campaign officially begins. He kicks off the campaign with an appearance on CNBC's morning market news show Squawk on the Street. He uses his TV time to tear into Disney's financial results. Then he sets to work poking holes in Iger's reputation as a superstar CEO by highlighting one of the last big decisions he made during his first run as Disney's CEO, the buyout of 21st Century Fox in 2019.

They lost about $50 billion on Fox. Fox hurt this company. Fox took the dividend away. Fox created what was once a pristine balance sheet into a mess. That same day, Peltz's Tryin Partners hedge fund launches a campaign website called Restore the Magic.

The website sets out Tryon's criticisms of Disney's performance and outlines a plan to turn the business around through greater financial discipline. But Peltz's attack won't go unanswered. Iger and the Disney board are determined to keep him out, and they're cooking up an alternative turnaround plan, one designed to stop Tryon's campaign in its tracks.

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It's January 17th, 2023. Five days have passed since Nelson Peltz began his "Restore the Magic" campaign to gain a seat on Disney's board. For a week, Peltz has hogged the limelight by trash-talking Disney chief Bob Iger's record, particularly his decision to buy 21st Century Fox for $71 billion.

But now, Iger and the Disney board are striking back by issuing a presentation to stockholders setting out the reasons why Peltz's bid for the boardroom should be rejected. The presentation starts by highlighting the experience of the existing board members and recounting the successes from Iger's first term as CEO. Then, it takes aim at Peltz.

It accuses him of lacking the skill, experience and understanding needed to make a useful contribution. It defends the Fox buyout as a source of valuable franchises like Avatar and The Simpsons. Then it rebuts Pelts' claim that Fox ruined Disney's balance sheet by arguing that it was COVID, not Fox, that caused the company's debt load to spike during 2020 and 2021. The rival narratives are now in place.

Disney's casting Pelts as the man without a clue. Pelts paints Disney as an American icon laid low by overspending. In the days that follow, Pelts sharpens his attack. He singles out Disney director and former White House advisor Michael Froman as his prime target. He calls on shareholders to give him Froman's seat on the board, on the grounds that Froman spent his career in federal government. And that's of little use to Disney. But while Pelts tries to pick off Froman,

Iger's cooking up a defense designed to keep the company's stockholders on his side. It's February 8th, 2023, and Bob Iger is leading his first earnings call since returning as CEO.

And despite another quarter of mixed results, it's clear to the analysts and investors listening in to the call that there's a smile on Iger's face. And that's because he's using this moment to lift the lid on the big plan he's been working on since being reinstated as CEO. It's time for another transformation at Disney, one that rationalizes our enviable streaming business and puts it on a path to sustained growth and profitability while also reducing expenses.

And that transformation is a reorganization plan designed to lift investor spirits and kill Pelts' boardroom challenge, Stone Cold. We are targeting $5.5 billion of cost savings across the company. To help achieve this, we'll be reducing our workforce by approximately 7,000 jobs. That's 4% of Disney employees who are about to lose their jobs. But jobs aren't all that's getting cut.

On the content side, we expect to deliver approximately $3 billion in savings over the next few years, excluding sports. As investors listen, Iger forecasts that Disney Plus will start turning a profit by the fall of 2024.

He promises to reassess Disney's activities overseas, adjusting pricing strategies, and giving the company's creative leadership more decision-making power while also making them more accountable for the financial performance of their productions. He also announces that the board has formed a succession planning committee to identify and prepare the next CEO of Disney. It's a cost-saving plan that directly tackles most of Pelz's criticism, but it's going to take time to deliver.

So, Iger's also got a treat to immediately lift the spirits of every Disney investor right away. As a result of the impact of the COVID pandemic, we suspended the dividend in the spring of 2020. Well, now that the pandemic's impacts to our business are largely behind us, we intend to ask the board to approve the reinstatement of a dividend by the end of the calendar year. The return of the dividend and the restructuring plan go down well with the markets.

With billions of savings on the way and thousands of employees set to get pink slips, Disney stock rises 5% to reach its highest level since August 2022. Even Marvel's frugal chairman Ike Perlmutter likes the plan. And that leaves Peltz's campaign for a board seat pushed into a corner. He wanted cuts. Now he's got them. And his proxy war looks pointless.

It's the next morning, and on CNBC's Squawk on the Street, host Jim Cramer has just taken an unexpected call from Nelson Peltz. He's ready to share his reaction to Bob Iger's plan to save more than $5.5 billion and eliminate 7,000 jobs. Nelson, is this one of those where you just declare victory? This was a great win for all the shareholders. Management at Disney now plans to do everything that we want them to do.

We wish the very best to Bob, his management team, the board. We will be watching, we will be rooting, and the Foxy fight is over. I know you don't typically talk about it, but I'm going to ask you, how much money did you make? Well, who's counting? All right, well, I just, the viewers. But while Peltz won't put a figure on it, he's made some serious money.

Tryon's stake in Disney is estimated to have grown in value by $200 million in less than three months. And shortly after ending his proxy fight, Peltz sells a third of Tryon's stake in Disney to lock in $60 million of profits. His saber-rattling has delivered another huge payday for Tryon. But not everyone in this fight is going to emerge victorious.

March 29th, 2023, Palm Beach, Florida. In his Oceanside mansion, Ike Perlmutter reaches for his ringing phone. The 80-year-old Marvel Entertainment chairman checks who's calling. It's a California area code. Most likely Disney's head office. He answers the phone. This is Ike. Hi, Ike. It's Horatio Gutierrez. Perlmutter frowns slightly. Gutierrez is Disney's general counsel. He and Gutierrez don't talk often. Something must be up.

"What can I do for you?" "I'm calling to inform you that as part of the reorganization we are disbanding Marvel Entertainment. Its activities will be folded into larger Disney business units." Perlmutter says nothing. Since he lost control of the movies back in 2015, Marvel Entertainment has become a backwater within Disney. Its comics publishing business generates less than $60 million a year, a tiny sum for a company as big as Disney.

Gutierrez continues. So, this is payback for daring to challenge the orthodoxy in this company. This is because I work with Nelson Peltz, isn't it? I very much doubt that.

"This is purely about efficiency, and we're eliminating jobs as per the reorganization plan, and yours is unfortunately one of them." "This is a necessary step in creating a more efficient company." "We appreciate the years of service you've given the Walt Disney Company. Someone will be in touch to arrange the severance package." "Whatever. Goodbye." Perlmutter hangs up. Despite the assurances, he's convinced that this is personal.

To his mind, this is Bob Iger taking revenge on him for encouraging Nelson Peltz to challenge how things are done at Disney. But they're not going to get rid of him that easily. Perlmutter still owns $3 billion of Disney stock, making him the company's biggest individual shareholder. That gives him power. He doesn't believe Iger will make good on his promises of keeping spending in check and focusing on profits.

So if Iger thinks he's heard the last of him and Pelz, he's in for a rude awakening. On the next episode, Iger struggles to restore the magic, Perlmutter unites with Pelz for a new attack, and Disney's investors weigh whether to add Pelz to the board.

If you like Business Wars, you can binge all episodes early and ad-free right now by joining Wondery Plus in the Wondery app or on Apple Podcasts. Prime members can listen ad-free on Amazon Music. Before you go, tell us about yourself by filling out a short survey at wondery.com slash survey. From Wondery, this is Episode 1 of Disney Under Siege for Business Wars. If you're interested in hearing more about Marvel's history, check out our season on Marvel vs. DC.

A quick note about the recreations you've been hearing. In most cases, we can't know exactly what was said. Those scenes are dramatizations, but they're based on historical research.

I'm your host, David Brown. Tristan Donovan of Yellow Ant wrote this story, researched by Marina Watson. Our senior producers are Karen Lowe and Dave Schilling. Our producers are Emily Frost and Grant Rudder. Sound design by Ryan Potesta. Voice acting by Emmanuel Chimasiero. Fact-checking by Gabrielle Jolet. Our managing producer is Desi Blalock. Our senior managing producer is Callum Plews. Our executive producers are Jenny Lauer Beckman and Marshall Louis. For Wondery.

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