Shareholders vote on Nelson Peltz and Bob Iger

Disney Shareholders will settle a long-running proxy battle led by billionaire investor Nelson Peltz on Wednesday.

Voters will decide whether the company’s board deserves another year together, or whether candidates nominated by activist investors, including Trian Partners’ Peltz, should replace some directors.

Disney’s 2024 annual meeting begins Wednesday at 1 p.m. ET. Disney will broadcast a live broadcast of the event, which typically lasts about two hours.

Peltz, 81, along with former Disney CFO Jay Rasulo, have embarked on a quest to land two board seats. They asked shareholders to appoint them as new directors in place of Maria Elena Lagomasino and Michael Froman.

Peltz, who doesn’t like to be called an activist but has orchestrated successful campaigns at iconic companies like PepsiCo, P&G And Wendy’s, controls a $3.98 billion stake in Disney, or about 2% of the total shares outstanding. Most of those shares are owned by former Disney executive and Marvel CEO Ike Perlmutter, who backed Peltz and is paying part of the proxy solicitation expenses, according to an SEC filing.

Trian says Disney’s board has failed to generate sufficient returns in recent years as streaming subscription losses have increased and traditional television subscribers have declined. Trian also argued that Disney’s board had struggled with succession planning, noting that Iger renewed his CEO contract five times and had to return to the role in late 2022 after his failed tenure. transfer to Bob Chapek.

Disney responded that Iger had been righted the ship since his return as CEO, and the company should be able to recover without distraction. The company also has said Iger and the board are conducting a rigorous estate vetting process, which is expected to remain uninterrupted.

“The entire board is building on this forward-looking and incredibly disciplined (succession) process,” said Morgan Stanley executive chairman James Gorman, who joined Disney’s board in February, in an interview with CNBC’s “Squawk on the Street” last week.

Disney stock closed Tuesday at $122.82, up 55% from an Oct. 27 low of around $79, but down 38% from $197 three years ago. The stock has jumped 36% since the start of the year, compared to a 9% gain for the S&P500.

Disney and Trian received support from influential shareholders ahead of Wednesday’s meeting. Disney leads Trian with more than 60% of shareholder votes already cast, Bloomberg reported Tuesday.

A prominent shareholder, who did not have access to non-public information and spoke on condition of anonymity, told CNBC he expected the vote to be extremely close.

About a third of Disney’s shareholders are individual shareholders, who traditionally vote in small numbers at annual meetings. But some individual stakeholders, including Star Wars creator George Lucas and Laurene Powell Jobs, hold significant stakes in Disney that give them weight comparable to that of institutions. Lucas and Powell Jobs, who own Disney stock through acquisitions of LucasArts and Pixar, respectively, have supported Iger and the current board.

“Turnout in contested elections tends to be higher because both sides seek votes” from large and small shareholders, said 13D Monitor founder and president Ken Squire.

Institutional investors own the remaining two-thirds of Disney stock. black rock, Disney’s second-largest shareholder, is considering backing the company, the Journal reported Monday. CNBC confirmed Price T. Rowe, which owns about 9.3 million shares of Disney stock, according to FactSet, also supports Disney. Institutional shareholders can change their vote until Wednesday’s meeting.

“We are confident that management has a viable plan to address the significant issues facing the company,” a T. Rowe spokesperson told CNBC.

Iger also has the backing of Mason Morfit’s ValueAct Capital, which has consistently pushed for strategic changes. The two parties signed an “information sharing agreement” in January, allowing Morfit access to non-public information. ValueAct owns just 0.28% of Disney shares outstanding, but its value to the company goes beyond voting. Disney was able to leverage ValueAct’s network and expertise when reaching out to institutional investors.

The California Public Employees’ Retirement System (CalPERS), Yacktman Asset Management and Neuberger Berman have expressed support for Peltz and Rasulo.

Even for seasoned advisors, it is difficult to predict how large institutions will vote. The high-profile nature of the fight and mixed recommendations from proxy advisory firms can make the fight even trickier.

“As the stakes increase, so does shareholder independence,” said John Ferguson, senior partner at Saratoga Proxy, who is not involved in the Disney-Trian situation. “At Disney, more than in most fights, you’re going to see shareholder independence.”

Trian may have signaled that he was concerned that Rasulo — who trailed Peltz in the first vote count, according to the Journal — would not garner enough support to clinch a seat. The activist fund filed a document on Monday specifically focused on removing Lagomasino.

“She oversaw years of poor shareholder returns and deteriorating financial performance,” Trian wrote in his shareholder filings. “Her wealth management experience is not relevant to Disney’s business and she does not possess any skills critical to Disney’s strategy that other directors do not possess.”

The vote of individual shareholders ended Tuesday evening. Disney estimated it would spend $40 million to solicit shareholder support. This figure does not take into account the time and energy that Iger and his management team spent meeting with major shareholders.

Trian estimated he would spend $25 million on this fight. Peltz, his top lieutenants and their advisers met with investors throughout March.

Shareholder advisory firms Glass Lewis and ISS shared their recommendations to shareholders. Glass Lewis sided with Disney and claimed that Iger’s return, coupled with this year’s appointments of Gorman and former Sky CEO Jeremy Darroch to the board, gave the company ” an adequate opportunity to launch a more credible succession program and develop, communicate and execute several key projects.” initiatives that reasonably appear to target Disney’s recognized operational and financial weaknesses. »

ISS countered that failures in board oversight, particularly in matters of succession, led the company to recommend Peltz’s nomination — but not Rasulo’s.

“Progressive change is needed in the company due to the multi-year underperformance of its peers and chosen benchmark, operational challenges and, most importantly, repeated failure on the part of the board of directors to oversee the formation of a successor to Iger,” ISS said. wrote.

The largest shareholder who spoke to CNBC said ISS’s decision to support Peltz over Lagomasino was a significant surprise.

While supporting Peltz, ISS said shareholders should not support Rasulo, citing his previous positioning as a potential successor to Iger.

“While we have no concerns about his ability to act as an objective director, we recognize that Rasulo’s potential presence could create additional friction on the board,” ISS wrote.

Peltz and Rasulo aren’t the only two new board members shareholders can vote for. Activist investor Blackwells, led by Canadian heir Jason Aintabi, is also presenting a list of potential new directors.

Best known for his successful 2022 campaign to remove Platoon CEO John Foley, Blackwells has appointed head of media Jessica Schnell, SL Green director Craig Hatkoff and TaskRabbit founder Leah Solivan are the three candidates to replace Disney’s board of directors.

Blackwells does not support Trian’s campaign and has different recommendations for Disney than Peltz and Rasulo, including a possible spinoff of the company by separating its real estate holdings into a publicly traded real estate investment trust.

Yet Blackwells has also been a thorn in Disney’s side. The investment firm released a presentation last month detailing a prior relationship between ValueAct and Disney in which the investor earned tens of millions of dollars in management fees from Disney pension funds.

ValueAct has not managed Disney assets since it began building a stake in late 2023, a person familiar with the matter previously told CNBC. The deal still raises questions about ValueAct’s support for the company and whether Disney’s board should have disclosed the prior relationship.

Disclosure: Sky is owned by Comcastthe parent company of CNBC.

WATCH: Disney board battle reaches final moments