Disney has won the most expensive proxy fight in US history. Shareholders elected all twelve candidates nominated by the company to the board of directors at the annual meeting last Wednesday – by a „significant margin“, the entertainment giant announced. This marks a defeat for activist investor Nelson Peltz, who had applied for a director position and had positioned himself as an ideal overseer of CEO Bob Iger's management for over a year.

The CEO expressed relief at the end of the proxy battle, for which Disney, Peltz's hedge fund Trian, and the lesser-known competitor Blackwells had planned to spend a total of 70 million dollars, according to documents filed in January. Following the distraction caused by the conflict, management is now „eager to focus 100% of our attention on our most important priorities: growth and value creation for our shareholders and creative excellence for our customers,“ Iger said.

The Mickey Mouse conglomerate faces multifaceted challenges. Since the end of the Covid-19 pandemic, Disney's film studios have produced a series of box office disappointments, although Iger pointed to a „robust slate“ of potential blockbusters from popular franchises in a presentation on Wednesday.

Meanwhile, the streaming business is still not profitable. Since the launch of the Disney Plus service in 2019, the company has burned over 11 billion dollars in this segment. Nevertehelss, Iger has recently made significant improvements in that regard. The direct-to-consumer segment, which includes the company's video-on-demand platforms, reduced losses to 138 million dollars in the first financial quarter of 2023/24, which ended in December, compared to a loss of 984 million dollars in the previous year.

Both price increases at Disney Plus and Hulu and a rise in advertising revenue have had a positive impact. Disney Plus now has 46.1 million subscribers in the US, retaining more viewers than expected. The streaming business is expected to finally turn a profit by the end of the current fiscal year.

At the same time, Iger is pursuing aggressive cost-saving measures, which have proven surprisingly effective. As per the CEO's statement, Disney is making significant progress towards surpassing the previously estimated 7.5 billion dollars in cost reductions by the end of September, or at the very least, meeting that goal. Disney expects earnings of 4.60 dollars per share for the entire fiscal year 2024 due to efficiency gains.

With these strong results and aggressive forecasts, Disney had already reduced vulnerabilities to activists ahead of the annual meeting. Chief opponent Peltz repeatedly criticized the entertainment giant during his campaign, arguing that the board had failed to address the succession plan for 73-year-old Iger, who has been serving in his second term as CEO since November 2022.

Additionally, Peltz argued that Disney directors had not provided enough incentives for management to act in the interests of investors, being responsible for low earnings and valuations. Since early 2021, Disney's stock has lost about a third of its value, but it has been on the rise again for several months.

Following the defeat, Trian attributed part of the credit for the positive turnaround at the entertainment conglomerate to itself. The hedge fund is „proud of the influence we had in refocusing the company on value creation and good governance", a statement said. Peltz noted at the shareholder meeting that he hoped his second campaign at Disney would be his last.

The results of the annual meeting represent a vote of confidence for Iger, who was reelected to the board with 94% of the votes. Peltz received votes from 31% of eligible shareholders, while his direct opponent in the boardroom battle, wealth management strategist Maria Elena Lagomasino, garnered 63%.

For Disney, the support of retail investors paid off, as they control an unusually high proportion of more than a third of the outstanding shares of the company. Prominent figures such as Jamie Dimon, CEO of J.P. Morgan, „Star Wars“ creator George Lucas, and representatives of the Disney family also rallied behind Iger and his colleagues.

The shareholder meeting was also in the spotlight on Wall Street as it represented one of the first major tests for new voting rules adopted in the fall of 2022. Previously, shareholders had only the choice to vote for either the entire slate of board favorites of a company or the directors proposed by an activist; now, all candidates appear on a ballot, allowing shareholders to make a mixed selection, which analysts believe may have favored Peltz.

Despite this rule change, Peltz fell short, dealing a blow to Trian. The investment firm is trying to reinvent itself after experiencing significant outflows due to diminished performance and the departure of key personnel. However, the heated proxy battle at Disney underscores the potency of Peltz's central criticism: The lack of succession planning for Iger, who plans to step down when his contract expires in 2026.

By repeatedly highlighting this weakness, the Trian chief – already cooperating with Ike Perlmutter, a Disney major shareholder and former head of Marvel Comics – managed to enlist the support of two influential shareholders, the US pension fund Calpers and investment firm Neuberger Berman. The powerful proxy advisor Institutional Shareholder Services also advocated for Peltz's inclusion on the Disney board. Moreover, billionaire Elon Musk, who is embroiled in a feud with Iger, publicly supported the hedge fund manager on the morning of the annual meeting.

The search for the next Disney CEO is likely in full swing by now. Internal top candidates reportedly include Dana Walden and Alan Bergman, who head the Disney Entertainment unit – which encompasses both the TV and streaming divisions and the film studio business. Also in the running are Josh D’Amaro, responsible for the theme parks, and Jimmy Pitaro, CEO of sports broadcaster ESPN.

Communicating the key personnel decision soon would further reassure major Disney shareholders such as Blackrock, Vanguard, and T. Rowe Price, who recently backed the board, according to analysts. Meanwhile, Iger must continue to deliver on his strategy turnaround.