Disney Plans Get Crushed

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Walt Disney Co. (NYSE: DIS) investors have expressed skepticism about current and fairly newly minted CEO Bob Chapek. The entertainment company has gone into decline over most of his tenure. Disney’s stock price has cratered, and the primary key to its future, which is its streaming video business, has shown signs of faltering. Nevertheless, Disney’s board has made the mistake of giving Chapek an extended contract.
Enter Dan Loeb of Third Point, an investment firm that preys on poor management. It has pressed for a reorganization of Disney’s streaming business. Loeb wrote “Disney’s costs are among the highest in the industry, and we believe Disney significantly underearns relative to its potential. We urge the Company to embark on a cost cutting program that addresses both margins and the disposal of excess underperforming assets.” He also asked for a “refresh” of Disney’s board. The request seems fair since some board members have served since before Chapek’s initial appointment.

Loeb wants ESPN spun off. The request has the strength of being reasonable. ESPN remains an odd asset when set side by side with Disney’s theme park, TV and movie businesses. Like many spin-offs, its value should be clearer when it stands alone.

Loeb also wants Disney to buy the part of streaming company Hulu it does not already own and integrate it with Disney’s Disney+ streaming unit. Again, the plan makes sense. Why should Disney operate two streaming entertainment businesses?

As a defense, Disney reacted by proudly pointing to its most recent quarterly results. However, these do not offset a 33% drop in the stock price this year. By the most important measurement stick for a public company, Chapek has failed his shareholders. Those shareholders should hope Third Point’s move is successful.

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