Disney Activist Investor Blackwells Capital Proposes Company Split

Blackwells Capital has proposed that Disney undergo a real estate and strategic asset review, including a potential split of the company, as part of a plan to help turn its business around.

In a proxy filing on Tuesday, the activist firm noted that Disney has an “almost unimaginable portfolio of real estate around the world” with tens of thousands of acres of land, over 30,000 hotel rooms, thousands of vacation club units and more.

While acknowledging that those real estate holdings could be used a potential source of “long duration capital to address balance sheet and income statement challenges and opportunities,” the firm argued that they are being “obscured by the Company’s conglomerate structure.”

“Disney could separate its owned real estate, which represents approximately 44% of its market capitalization at cost, into an independent publicly listed [real estate investment trust] or a series of investment vehicles in which the shares, cash and/or interests could be distributed to shareholders,” the filing states.

Blackwells pointed to their board nominee Craig Hatkoff’s nearly 50 years of public company service as an independent director, including at SL Green Realty Group.

“Mr. Hatkoff’s substantial expertise extends to exploring all strategic possibilities with cold eyes, including the potential separation of Disney into three entities, beginning with a management reorganization and leadership selection for each business and resulting in standalone public companies,” Blackwells added. “Disney may simply be too complex for any one successor to Mr. Iger to manage holistically, and Blackwells believes that it is the responsibility of the Board to oversee these types of analyses in the ordinary course.”

In addition to Hatkoff, Blackwells touted former NBCUniversal and Warner Bros. executive Jessica Schell’s experience in media and content monetization, including being an original member of the NBC Universal management team that launched Hulu.

“We firmly believe Ms. Schell’s contributions as a director will help Disney attain Netflix like growth rates on subscribers and pricing for Disney+ based on her expertise, with meaningful upside to be unlocked by integrating Disney +, Hulu, and ESPN+,” the firm wrote.

It also called on Disney’s board to increase its focus on augmented and virtual reality, which it called a “once in a lifetime shift in consumer behaviour and interaction.”

Blackwells’ third nominee, Leah Solivan, has had experienced in AR, VR and artificial intelligence as a general partner at Fuel Capital. She also founded the on-demand marketplace company TaskRabitt, which scaled its international business to 44 cities before being sold to IKEA.

Blackwells argues that Disney’s current board lacks the qualifications that its own candidates possess, noting that only two non-executive directors have significant media experience. It also slammed Disney’s information sharing agreement with ValueAct Capital, arguing the pact is “proof positive that independent and new perspectives are necessary.”

“Disney’s share price suffers from a significant information discount, as recently noted by several key market analysts,” the firm added. “Showering one shareholder with information that is withheld from all other shareholders, will only make matters worse.”

However, the firm pledged that its nominees would continue to support Bob Iger’s turnaround efforts if elected.

In addition to Blackwells, Trian Fund Management has nominated its founder Nelson Peltz and former Disney chief financial officer Jay Rasulo in an attempt to secure two board seats – whom Blackwells called “uninspiring.”

“Mr. Rasulo is a former Disney employee who plainly lacks relevant expertise. Mr. Peltz has spent the last two years begging Disney for a Board seat, and seems to focus his efforts on soliciting endorsements from Elon Musk- who doesn’t own a single Disney share, and is aggrieved at Disney for withholding advertising dollars from his struggling social media platform,” Blackwells chief investment officer Jason Aintabi said. “These are not winning strategies for Disney Shareholders.”

In its own proxy filing, Disney said that Schell would not be an independent director, citing her brother, Connor Schell, developing, producing and selling content to media companies including Disney’s ESPN, ABC and Hulu, through his production company, Words + Pictures.

It also said she does not have any experience serving as a director of a public company, and that Hatkoff and Solivan do not have “any relevant large, public media and entertainment company experience or skills” that would assist the board in its strategic transformation.

Additionally, it says that Peltz “brings no media experience has presented no strategic ideas for Disney,” while Rasulo’s perspective is “stale” given he left the company in 2015 and has not held any executive positions in the industry since.

Disney’s own slate of board candidates includes CEO Bob Iger, Mary Barra, Safra Catz, Amy Chang, Carolyn Everson, Michael Froman, Maria Elena Lagomasino, Calvin McDonald, Mark Parker and Derica Rice, as well as recent appointees James Gorman and Jeremy Darroch.

Hatkoff, Schell, Solivan, Peltz and Rasulo will all stand election at Disney’s annual meeting on April 3. Shareholders of record as of the close of business on Feb. 5 will be entitled to vote at the meeting.

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