News & Insights

Weekly update – Storytellers

Bowls!

No, that's not a typo for what I scream when I get my password wrong for the fourth time in a row. Rather it's a lesser known sport that I happen to play and love.

Bowls is a sport where you have a weighted ball that you roll up to a smaller ball. Closest wins.

It's not a complex sport, and it's also not the most visually entertaining of sports. So two weeks ago, when Guernsey hosted the World Bowls Indoor Championships (WBIC), it's fair to say that we needed a creative media strategy.

We landed on such a strategy, taking inspiration from the Emerson quote that it's "a journey, not a destination." People want there to be meaning behind the result on the scorecard, for that moment to be a story rather than cold, hard fact. Whilst that was achieved at the WBIC, with a fairytale win for Guernsey, it got me thinking about how a storytelling giant, the original kingpin of fairytales, had recently lost its way - only to now have reached an inflection point.

That giant is our Blue Chip holding, Disney.

Disney is best observed as seasons, just like you would find on Disney+. Bob Iger was Season 1 - 2005 to 2020, and Bob Chapek was Season 2 - 2020 to 2022. Bob Chapek was lured to the dark side throughout Season 2, consisting of value destructive decisions like placing less emphasis on creativity, a management shake-up often based around loyalty and creating enemies within senior management. Ultimately, Chapek was fired, and Iger swooped back in to save the day.

At least that’s how it was initially framed; in Season 2’s Marvel-like post-credit scene we saw cracks beginning to show within the Disney Board. They often laid blame at the feet of Chapek for the situation the company faced. However, that accountability then also falls to the board on three accounts: one it was their failed process which granted Chapek that position, two they failed in reigning in destructive decisions and did not clearly set a trajectory for his tenure, and three they went back to Iger which - whilst arguably the correct decision - cemented huge concerns over the company's succession process. Season 2 was not the catharsis, but rather the sewing of the seeds.

Season 3’s (2022 to 2024) jubilation surrounding Iger's return quickly faded when the mountain of challenges came into view. These problems consisted of ESPN, the Indian arm of the business, cost cuts, political entanglements etc., but all pale in comparison to Season 3's overarching narrative - invasion from an outsider.

Here we must introduce another character to the House of Mouse's Clubhouse: Nelson Peltz. A billionaire activist investor who, perhaps like Thanos, saw himself as a beacon to absolve Disney of its problems. He wanted a slice of the pie, a bite at the cherry, a space at the Board table.

The arguments for having Peltz consisted of having a shareholder representative on the Board who invigorated the selection process, he could have provided the needed devil’s advocate role on the board that perhaps has been missing, and furthermore his ascension would appease Peltz and put a stop to these threats of activism that detract time and resources away from driving the company's plan forward.

The arguments against having Peltz were that he arguably brought no additional skills to the board (other than an impetus for change), he may have had conflicts with other board members, and he was closely associated with Ike Perlmutter who provided a big portion of the voting firepower Peltz required to fight these battles. Perlmutter, former Chair of Marvel, is known for his large personal disagreements with senior Disney management such as Iger. This argument, that Peltz would disrupt the company for personal agenda, seemed weak given that it would solely be himself versus all the other board members, plus as an investor with stakeholders of his own, he would want Disney to be value accretive – and not a means of settling vendettas.

This eventually resulted in the final showdown of Season 3, Disney's Annual General Meeting on 3 April 2024 where the two sides faced off against one another. Nelson Peltz, with Ike Perlmutter for support, versus Bob Iger, with backing from the likes of George Lucas and Jamie Dimon. After weighing up both parties’ arguments, Blue Chip voted with our shares in favour of the majority of Peltz's proposals. A decision not taken lightly, and one which we are happy to share our rationale with you at your request - just as we are more than happy to do with any of the company votes across the Blue Chip portfolio.

Whilst Iger's proposals did eventually go onto win, we ultimately consider this to still leave the company in a strong position. First and foremost, we stand by our voting rationale, but we also see the merits of the final result that highlight shareholder support for the current turnaround plan being progressed at Disney, and consequently belief in management’s credibility. One that we are watching with a keen eye.

That brings an end to Season 3, and Season 4 is already off to the races with hot storylines such as sports deals, focusing on creative quality to halt their Oscar dry spell, resolving the systemically poor succession planning – bolstered now with Gorman on the Board, the man who led the recent Morgan Stanley succession, and the management of the $60bn investment into their parks, with magical developments already appearing.

It truly is a riveting story at Disney, and one we shall continue to keep track of for the benefit of your investment journey.