Disney’s Board Showdown is Coming to a Head, but One Winner is Already Clear

The outcome of Walt Disney Co.'s ongoing proxy battle with activist investors remains uncertain, but according to Needham analyst Laura Martin, one clear victor has already emerged: public shareholders. Martin noted in a client memo on Tuesday that due to the contentious dispute, Disney's stock has surged by 34% year-to-date, outperforming the S&P 500's 9% gain.

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Disney finds itself in a heated confrontation with activist investors affiliated with Trian Group and Blackwells Capital, both of whom have put forth alternative director nominees for Disney's board. The media conglomerate's annual meeting is slated for Wednesday.

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In Martin's assessment, Disney has already taken strides toward advancing growth initiatives and managing expenses, a trajectory she believes has been accelerated by the pressure exerted by Trian and Blackwells. However, she contends that the activist investors have not significantly contributed to the substance of Disney's turnaround efforts. Regardless of the proxy vote outcome, Martin anticipates ongoing pressure on Disney to enhance shareholder value, which she views as beneficial for public shareholders.

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Despite Disney's progress, Martin acknowledges several challenges that lie ahead, including the impact of cord-cutting, subdued box-office performance, diminished demand for theme parks, and losses in its streaming division. She suggests that Disney's optimal path forward would involve a sale to tech giants like Apple Inc. or Amazon.com Inc., although she acknowledges the regulatory hurdles such a deal would face. Martin maintains a buy rating on Disney shares with a target price of $145.

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Meanwhile, Barton Crockett, an analyst at Rosenblatt Securities, observes that Disney's recent actions, characterized by assertive language and a steady stream of communications, hint at underlying apprehension. However, Crockett had initially anticipated Disney's victory in the proxy battle, a sentiment echoed even before reports from the Wall Street Journal on Monday indicated that Disney held a lead with more than half of the votes tallied thus far. Crockett notes that ballots can still be revised.

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Acknowledging the tight contest, Crockett adjusted his price target for Disney shares from $129 to $137 in his latest report, reflecting factors such as management's indication that free cash flow is poised to exceed guidance. He maintains a buy rating on the stock.

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