As Activists Third Point Build Stake, Push For ESPN Spinoff, Board Changes, Disney Stock Rises

As Activists Third Point Build Stake, Push For ESPN Spinoff, Board Changes, Disney Stock Rises ...

Updated at 11:05 EST

The stock of Walt Disney Co. (DIS) climbed higher Monday after activist investor Dan Loeb announced a new position in the media and entertainment company, as well as demands for changes to the company's board of directors and the ESPN sports network's spin-off.

Loeb said his Third Point LLC hedge fund, which manages roughly $14 billion in assets, would advocate for cost reduction and debt reduction, as well as the acquisition of Comcast's (CMCSA) 33% minority interest in Hulu before the contractual deadline in early 2024. The firm also wants to initiate a "board refresh," noting "gaps in talent and experience as a group that must be addressed."

Third Point's main change is the ESPN spin-off, which it claims will reduce leverage at the parent company while giving a standalone ESPN the flexibility to pursue increasingly expensive sports rights and enter the lucrative sports betting industry.

ESPN has been described as a "excellent business that generates significant free cash flow" and supports Disney+'s subscriber growth through its bundled sports offering.

TheStreet Recommends Recommendations

Eyes Turn to Ethereum's 'Merge' for a Crypto Price Check

Walmart Earnings Preview: Can Falling Gas Prices Increase Second Half Spending?

7 Easy (and Free) Ways to Give Money to Charity

"Despite these advantages, we believe that the ESPN business should be separated from shareholders," Loeb wrote in a letter to Disney CEO Bob Chapek. "As a result of this transaction, both companies will attract shareholders seeking the respective qualities of each, allowing the Disney parent multiple to expand as its earnings growth rate increases, and the remaining business is no longer haunted by the specter of cord cutting."

"While I understand you have considered this possibility in the past, we encourage the Company to retain counsel to reassess the rationale for the transaction in the current context," Loeb said.

Following news that the Third Point position would change hands at $123.91 each, Disney stock was 1.9 percent higher in early Monday trading.

ESPN+, Disney's sports-focused streaming business, reported a total of 22.8 million paid subscribers last week, compared to $4.55 million in average revenue per user.

Disney reported adjusted diluted earnings of $1.09 per share for the three months ended in June, compared to the same time last year, and well ahead of the Street's forecast of 97 cents per share.

Disney said the group's revenues increased by 26% to $21.5 billion, surpassing Street estimates, while the company's overall subscriber numbers increased to 152.1 million, surpassing analysts' estimates by roughly 3 million.

You may also like: