The Takeaways from Disney’s Proxy Battle with Nelson Peltz

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It’s over. Disney fended off the activist investor Nelson Peltz for the second time in two years, as its shareholders rejected his effort to win two seats on its board.

The House of Mouse claimed a “substantial” margin of victory, after a bitterly fought contest with Peltz and his major backer, the former Marvel chair Ike Perlmutter. Based on preliminary results from Wednesday’s annual investor meeting, Disney’s board candidates won the backing of 75 percent of individual shareholders, an outsize investor base.

But like any good Disney tale, the board fight provided a series of lessons for the future — for companies and activists alike.

A robust defense matters. Executives, led by the Disney C.E.O. Bob Iger, mapped out a series of bold initiatives last autumn, in part to blunt Peltz’s calls for change, according to The Wall Street Journal. That included cost-cutting efforts, an investment in the video game giant Epic Games and a shake-up in the struggling movie division.

It helps that Disney’s stock has risen 20 percent in the past year, diminishing Peltz’s argument that the company needed help. (His biggest wins have come at companies like Procter & Gamble where share prices languished.) That almost certainly mattered a great deal to big investors like BlackRock and Vanguard, which sided with Disney.

New proxy voting rules changed the fight’s dynamics. For years, companies’ shareholders were asked to choose between two slates of board candidates proposed either by the companies or by activist investors. But a new S.E.C. rule allows shareholders to more easily vote for a mix of nominees from both sides.

Parties involved in this battle told DealBook that because each side was fighting against specific individuals, instead of against an entire slate, attacks became more personal. (That said, there’s no love lost between Perlmutter and Iger.) The new system also enabled another activist investor in Disney’s stock, Blackwells Capital, to campaign against Peltz, dividing the opposition.

C.E.O. succession planning matters. One of Peltz’s biggest criticisms of Iger was his yearslong failure to properly identify and prepare his replacement, as the aborted tenure of Bob Chapek showed. That issue was cited by the proxy advisory firm Institutional Shareholder Services, which recommended voting in Peltz. And State Street, one of Disney’s three biggest shareholders, voted against re-electing Mark Parker, who leads the company’s succession planning committee.

Analysts and industry watchers expect Disney to redouble efforts to address succession ahead of 2026, when Iger’s current (and by his account, final) contract expires. Internal Disney candidates like the TV chief Dana Walden, the theme parks leader Josh D’Amaro and the ESPN head Jimmy Pitaro have been taking on more prominent assignments in recent months.

Janet Yellen defends protecting U.S. industries against China. The Treasury secretary suggested overnight that the Biden administration would defend emerging sectors like clean energy against Chinese overcapacity, a topic she’s expected to address with her counterparts in Beijing. That follows President Biden’s addressing unfair trade practices with the Chinese leader Xi Jinping earlier this week.

Paramount rebuffs a $26 billion overture from Apollo. The approach this past weekend for the entire media company — representing an expansion of Apollo’s $11 billion bid for just Paramount’s movie studio — was ignored, The Times reports. Paramount executives were focused on advancing negotiations with another bid, by Skydance, and preferred the bird in hand.

Google reportedly weighs charging for A.I.-powered search features. The tech giant is considering making available only to subscribers of its premium services the advanced capabilities that draw upon its Gemini artificial intelligence model, according to The Financial Times. It would be the first time Google has charged for anything related to its core search business.

Apple is said to explore home robots as its next big product. The iPhone maker is investigating the potential of personal robots and a robotic-driven display as future moneymakers, though the work is early and may not become full-fledged products, Bloomberg reports. Apple is casting about for hit products, after abandoning its electric-vehicle project and waiting possibly years for its Vision Pro to become mainstream.

Investors on Thursday still largely believe that the Fed will begin cutting interest rates in June.

It’s a bet that officials of the central bank themselves won’t make: Jay Powell, the Fed chair, reiterated on Wednesday that it is waiting for more evidence that inflation is slowing before it begins lowering borrowing costs.

Two major reports are arriving in the coming days, starting with tomorrow’s nonfarm payrolls report. Here’s what to watch.

Economists expect employers to have added at least 200,000 jobs last month, according to a Bloomberg survey. That would be a considerable drop-off from the 275,000 jobs created in February, but would still indicate a robust labor market. “Our economy has been short labor, and probably still is,” Powell said on Wednesday.

His contention was underscored by data from the payroll processor ADP that showed a surge in hiring, especially in the construction, leisure and hospitality sectors. Following the ADP report, economists at Goldman Sachs raised their forecast for tomorrow’s nonfarm payrolls number to 240,000, from 215,000.

Look at immigration. While it’s a hot-button political issue, it’s also a focus of economists. Foreign-born workers have become a surprising part of the job growth story (and may explain why the unemployment rate has gone up despite solid hiring figures).

Robust immigration has also been a big factor in America’s economic recovery from the coronavirus pandemic.

Wage growth will be of particular interest. There are signs that workers’ pay gains have begun to ease during the past year, as inflation slowed. Wall Street is on alert for any signs that wages are ticking up, which could force the Fed to recalibrate its rate-cut timeline.

Here’s a worst-case scenario for investors, according to economists at Bank of America: “Job growth of 250k+, stronger-than-expected wage growth, and a fall in the unemployment rate would likely further price out the chance of a June cut,” they wrote in a research note this week.

Donald Trump’s social media company has lost more than 30 percent in the past week in highly volatile trading. Despite that swoon, investors shorting the Trump Media & Technology Group are losing big.

The souring trade is complicated by the fact that major asset managers have largely stayed away from the stock, leaving “shorts” to scrimp for a relatively small pool of shares to acquire and pay dearly for them.

Trump Media is one of the most “shorted” stocks in the U.S. — and one of the costliest, according to S3 Partners, a financial data company. Last month, traders racked up $126 million in losses betting against Trump Media, the company said. (Short-sellers essentially borrow shares of a target company and sell them, hoping to buy them back at a lower price that locks in a profit.)

There’s some rationale for investors to short the stock: Trump Media reported this week that it had lost $58 million last year on sales of about $4 million, and that an independent auditor had expressed “substantial doubt” about its financial viability before it began trading last week.

Many of the shorts are betting on a surge in Trump Media warrants, which would give holders the right to new company stock at a fixed price. The gamble: Regulators would have to give the company the green light to issue the new shares.

Investors appear undeterred by such uncertainty. “There are still so many people looking to short the name,” Ihor Dusaniwsky, managing director of S3 Partners, told The Times.

  • Elsewhere in Trump Media news: Two brothers accused of masterminding a $23 million insider-trading scheme involving the company in its pre-I.P.O. days pleaded guilty to the charges on Wednesday. They each face prison sentences of up to 20 years.

Of all the debates in artificial intelligence circles, one of the biggest comes down to access: Should companies make their tech available for anyone to view, change and use (an approach known as open source)?

The White House, as part of its efforts to create new rules to govern A.I., is wading into the debate. On Wednesday it published more than 300 comments it has collected on the risks of open-sourcing A.I. The feedback boils down to two major categories:

  • Open-source A.I. is fairer and safer. Meta, one of the biggest proponents of the approach, wrote that it “leads to better, safer products, faster innovation, and a larger market.” The start-up incubator Y Combinator said such models “may have a heightened potential for misuse, but they also allow for democratic contribution and oversight.” And Andreessen Horowitz, the Silicon Valley venture capital firm that has invested in scores of A.I. start-ups, argued against any policies that would inhibit the development of open A.I. models. Its rationale: that open-source software has become a “foundation of the internet.”

  • It’s better to be cautious. Some of the biggest names in commercial A.I. — who stand to gain from keeping their tech proprietary — say that having tighter control of advanced systems protects against what OpenAI called “the operations of a number of nation-state cyber threat actors.” Google wrote that “open” and “closed” source sit on a spectrum, and that it’s better to talk about “different degrees of access to different components of a given system.”

Deals

  • Tottenham Hotspur, the English soccer club, says it’s in talks with potential investors about selling a stake as team valuations skyrocket. (FT)

  • Patrick Whitesell, the co-founder of the Endeavor entertainment conglomerate, is setting up a new media company with $250 million in backing by the investment firm Silver Lake. (Hollywood Reporter)

  • The rock band Kiss will sell its song catalog and the rights to its image and name to Pophouse, the entertainment company behind the ABBA avatar concert concept, reportedly for $300 million. (Bloomberg)

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