Disney board fight hinges on Vanguard, other institutional investors

In 2015, Nelson Peltz’s Trian Partners was defeated in an activist campaign against chemical firm DuPont, largely because the top three institutional shareholders voted against his slate. Nearly a decade later, those same institutional investors — Vanguard, State Street and BlackRock — are the three largest shareholders in Disney. And they could make or break Peltz’s campaign against the board that’s backing Disney CEO Bob Iger.

BlackRock, a 4.2% Disney shareholder, is backing management, The Wall Street Journal reported Monday. T. Rowe Price and Norway’s sovereign wealth fund, both smaller shareholders but well-known names, have confirmed to CNBC they’re also backing the current management.

It isn’t clear if Vanguard and State Street have voted, or which side they would support.

Trian already has fighters in its corner. Former Marvel chairman Ike Perlmutter has entrusted Peltz with his 33 million Disney shares, the bulk of the activist’s 1.8% stake. New York City’s retirement fund, Neuberger Berman, and the California pension plan CalPERS, said they support the activist. Peltz also won the backing of proxy advisory firms ISS and Egan-Jones.

The showdown between Trian Partners and Disney touches on some of the most complex issues confronting executives today, whether it is CEO succession or the role of corporations in confronting so-called “woke” social issues.

Iger left the CEO post in 2020. His successor, Bob Chapek, was ousted in 2022, with Disney’s board inviting Iger to take the top post once again. The succession failure has been highlighted by proxy advisory firms and Trian itself.

Disney says Peltz’s efforts distract from Iger’s efforts to turn the company around. Trian argues that Peltz’s expertise would help the company find a second successor to Iger and fix its underperforming stock.

Both sides have made their case to investors for months in media appearances, conferences, one-on-one dinners, and meetings with top investors. But the institutional vote will be key at Disney. Just 33% of shareholders are considered retail, a significant amount, but they’re less likely to vote than their institutional peers.

Vanguard is the largest holder with 8% of outstanding Disney shares. It can punch above its weight in deciding whether to elect the dissidents to Disney’s board. That’s because, like in a political election, not every eligible voter will vote during Disney’s shareholder meeting. 

In 2021, for example, 63% of Disney shareholders voted their shares, according to data analyzed by 13D Monitor.

In a contested election, that number is likely to go much higher as proxy solicitors on both sides canvass shareholders, 13D Monitor’s Ken Squire said.

“With the introduction of the universal proxy card, you should get better turnout as well,” Squire told CNBC.

Disney has hired Innisfree M&A for their solicitation. Trian is splitting the load between Okapi Partners and D.F. King.

Retail investors have seen advertisements or received mailers or phone calls urging them to vote for either Disney, the white proxy card, or Trian, the blue proxy card. More than half of the vote in the fight has already been counted as of Monday, according to The Wall Street Journal.

“Shareholders can change their mind, but unlike most institutional investors, individual shareholders start voting as soon as they receive the proxy. As such, most individual votes are already accounted for,” John Ferguson, senior partner at proxy solicitation firm Saratoga Proxy Consulting, told CNBC.

The solicitors are tasked with pitching retail shareholders, although courting and winning institutional investors is a bigger priority. Advisors on both sides have tried to win support from Vanguard, Blackrock and State Street.

It would be a major vote of confidence in Iger’s stewardship of Disney if he were to win the backing of undecided Vanguard or State Street.

But if Peltz manages to secure support from those investors, it would be a clear sign to Wall Street that the activist’s concerns at Disney — the failed succession process, an apparent distraction from storytelling in favor of “messaging,” and an expensive M&A and investment strategy — hold some merit.

The chances that institutional investors would be swayed by Peltz’s arguments were buoyed when proxy advisor ISS came out in partial support of Peltz in March.