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Dan Loeb invested $1 billion in Disney. But he's demanding sweeping changes to the company's operations.

Jamie Cameron
30. 8. 2022
5 min read

Third Point Management is a hedge fund founded by Daniel Loeb, who recently announced his $1-0.1% billion investment in Disney $DIS-0.1%. Of course, the stock reacted with a rise from the first, but what happened next may surprise you. Loeb wrote a letter to Disney's CEO after revealing this huge investment, outlining some demands for changes in the company's operations.

Daniel Loeb is a billionaire American investor and hedge fund manager at Third Point.

Hedge fund Third Point disclosed a stake of about $1 billion in Walt Disney $DIS-0.1% and said it plans to push the media company to make a number of changes. We'll take a look at his demands today, as Loeb didn't hesitate too long to share his thoughts in a letter.

First point: spin off ESPN

ESPN is a global sports cable and satellite television station.

In a letter to Disney CEO Bob Chapek, Loeb said there is a strong case that the ESPN business should be spun off, noting that the segment generates significant free cash flow for Disney.

"ESPN would have more flexibility to pursue business initiatives that may be more difficult as part of Disney, such as sports betting," Loeb said. "We believe most agreements between the two companies can be replicated contractually, the way eBay turned around PayPal while continuing to use the product to process payments."

Disney makes more money from cable TV subscribers than any other company thanks to ESPN alone. ESPN+, a limited-content streaming service, has become a stronger product in the past year as Disney has moved more exclusive live games and broadcasts to the service. The company also said last month that it would raise the price of ESPN+ to $9.99 a month from $6.99 a month starting Aug. 23, its biggest price increase to date.

Point Two: Move Hulu to Disney+

Hulu is an American provider of online movies and TV shows (most of the service is controlled by Disney).

Loeb further recommended in the letter that the company cut costs, continue the suspension of cash dividends instituted when theme parks closed due to the pandemic, and buy a minority stake in Comcast $CMCSA-0.3% to move Hulu and integrate it into the Disney+ streaming service.

  • Comcast is one of the largest media corporations in the world by revenue.
  • Loeb is urging the entertainment company to integrate Hulu directly into the Disney+ platform direct to consumer.

What does Comcast have to do with this?

Comcast has an agreement to sell its 33% stake in Hulu to Disney within two years. Loeb said Disney should "do everything possible" to acquire Comcast's remaining minority stake before the 2024 deadline.

"We believe it would even be prudent for Disney to pay a modest premium to accelerate the integration," Loeb said in the letter. "We know this is a priority for you and we hope an agreement can be reached before Comcast is contractually obligated to do so in approximately 18 months."

Disney responded to Loeb in a statement, saying the company has seen continued growth across its businesses.

"We welcome the views of all our investors," Disney said. "As our third quarter results show, The Walt Disney Company continues to deliver strong financial results based on world-class storytelling and our unique and highly valuable content creation and distribution ecosystem."

Item Three: Board Changes

While Disney is still losing YTD, I have to admit that a substantial portion of those declines have already been erased this year (specifically over the summer).

Further, Loeb wrote in a now-public letter to Disney CEO Bob Chapek that the board suffers from "gaps in talent and experience as a group that need to be addressed."

Specifically, Loeb is concerned that Disney's directors lack experience in digital advertising, consumer data monetization and other areas that could help Disney boost profits as the company becomes more technology-focused.

Disney disputed Loeb's characterization of the board in its response to his letter:

"Our independent and experienced board has significant expertise in brand, consumer and technology businesses, as well as talent-based businesses," Disney said after the letter was published. He said the board changes frequently, with directors having an average tenure of four years.

  • Finally, Loeb added that he would also like to see larger and more frequent share buybacks.

For an analysis of this news, see also this video:

(240) Dan Loeb's Third Point takes new activist stake in Disney - YouTube

Conclusion

As a Disney $DIS-0.1% shareholder, I certainly wouldn't be angry for certain changes. Personally though, I wouldn't change the board of directors and management at this point, here's where I disagree as I see good moves from Disney. Loeb does criticize certain steps and certain shortcomings in monetizing streaming, but one has to take into account that the dominant revenue is not so much streaming as it is the theme parks, which management has started to focus on again a lot after the coverup. At the same time, the company is engaged in aggressive expansion and improving its subscription packages, which I also welcome. As for the dividend being reduced or eliminated entirely, I'm not opposed at all on that point (it was almost a non-starter anyway, if I do say so myself). The Hulu-Disney+ merger could bring some expansion and strengthening of content, but in this case I can't say whether Disney will be willing to rush it when it already has terms pre-determined with Comcast for 2024. Plus, accelerating the purchase would lead to a possible premium for the stake (i.e., a purchase at some premium).

  • What do you think of Loeb's demands?
  • Are you investing in $DIS-0.1%?
  • Do Loeb's demands make sense to you?

Please note that this is not financial advice. Every investment must go through a thorough analysis.

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