Activist investor Daniel Loeb sent a letter to Disney CEO Bob Chapek, urging him to cut costs, spin off ESPN, and buy Comcast's share of Hulu and merge it into Disney Plus.
Loeb also revealed that his hedge fund, Third Point LLC, has purchased a new stake in the media conglomerate.
“ESPN would have greater flexibility to pursue business initiatives that may be more difficult as part of Disney, such as sports betting,” Loeb said in the letter sent Monday. “We believe that most arrangements between the two companies can be replicated contractually, in the way eBay spun PayPal while continuing to utilize the product to process payments.”
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Regarding Hulu, Loeb said integrating it into Disney Plus would "provide significant cost and revenue synergies, ultimately reigniting growth in the domestic market."
Loeb urged Chapek to "make every attempt to acquire Comcast’s remaining minority stake prior to the contractual deadline in early 2024. We believe that it would even be prudent for Disney to pay a modest premium to accelerate the integration but are cognizant that the seller may have an unreasonable price expectation at this time (while noting the seller has already made the decision to prematurely remove their own content from the platform.) We know this is a priority for you and hope there is a deal to be had before Comcast is contractually obligated to do so in about 18 months."
Disney has an agreement in place to secure Comcast's 30% stake in the Hulu joint venture in 2024.
Regarding costs, Loeb added, "Disney’s costs are among the highest in the industry, and we believe Disney significantly under-earns relative to its potential. We urge the Company to embark on a cost cutting program that addresses both margins and the disposal of excess underperforming assets."
Loeb's remarks come after Disney share prices have slid 21% since January.
Disney responded to Loeb's letter with this statement: “We welcome the views of all our investors. As our third quarter results demonstrate, The Walt Disney Company continues to deliver strong financial results powered by world-class storytelling and our unique and highly valuable content creation and distribution ecosystem. Under the leadership of Bob Chapek, the company has delivered this strong performance while navigating the COVID-19 pandemic and its aftermath, including record streaming subscriptions and the reopening of our parks, where we have seen strong revenue and profit growth in our domestic parks business.
"Our independent and experienced Board has significant expertise in branded, consumer-facing and technology businesses as well as talent-driven enterprises,"Disney added. "The Board has also benefited from continuous refreshment with an average tenure of four years.” ■
