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How Billionaire Dan Loeb Thinks He Can Transform Disney (DIS) Stock

  • Loeb purchased 1 million shares of Disney (DIS) stock during the second quarter.
  • The fund manager recommended a spinoff of ESPN, as well as four other changes.
  • Shares of DIS stock are down about 20% year-to-date (YTD).
Disney logo on a store front. DIS stock.
Source: chrisdorney / Shutterstock

Third Point founder and fund manager Dan Loeb is making headlines today after disclosing a 1 million share stake in Disney (NYSE:DIS) stock. Loeb also penned a letter to CEO Bob Chapek, urging him to make five strategic changes.

Third Point previously owned shares of the media giant from 2020 to early 2022. The fund’s flagship fund, Third Point Offshore Fund, has returned an annualized return of 15.1% since its inception in 1996.

Third Point has filed Hart-Scott-Rodino approval with the Federal Trade Commission (FTC) to engage more closely with Disney’s management and board. Loeb believes that Disney requires “additional strategic, capital allocation, and governance changes” in order to continue its success.

With that in mind, let’s get into the details of the letter.

DIS Stock: Billionaire Dan Loeb Calls for Change

First up in the letter, Loeb calls on Disney to reduce costs. The fund manager characterizes the company’s costs as “among the highest in the industry” and believes that a cost-cutting program and the disposal of “excess underperforming assets” could improve margins.

Next, in a statement that likely will not resonate with shareholders, Loeb suggests that Disney should suspend its cash dividend payments. Instead, he says Disney should use the cash for debt payments, share repurchases, or investments into the business.

Loeb also believes that Hulu should be directly integrated into Disney+. Doing so will provide “significant cost and revenue synergies.” Disney currently has a 67% stake in Hulu, while Comcast (NASDAQ:CMCSA) owns the rest. Comcast will hold the stake until January 2024. After that, it can force Disney to acquire its 33% stake for a minimum of $27.5 billion. Loeb says Disney should acquire the remaining Hulu stake before the 2024 deadline, even it if means paying a “modest premium.”

Furthermore, the fund manager recommends that Disney should spin off ESPN. An ESPN spinoff could attract more shareholders, provide greater employee compensation and increase flexibility to pursue initiatives like sports betting.

Finally, Loeb believes that Disney’s board has “gaps in talent and experience as a group that must be addressed.” The Third Point founder has already identified potential board replacements, although he did not specify them in the letter.

Disney responded to the letter, issuing a defensive stance:

“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.”

The company also lauded its current board and mentioned that board members are cycled out about every four years.

On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Eddie Pan specializes in institutional investments and insider activity. He writes for InvestorPlace’s Today’s Market team, which centers on the latest news involving popular stocks.

Article printed from InvestorPlace Media, https://investorplace.com/2022/08/how-billionaire-dan-loeb-thinks-he-can-transform-disney-dis-stock/.

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