Jan 11, 2024 - Business

ValueAct's two-leg Disney thesis seeks running room

Mason Morfit and Jordana Brewster. Photo by Axelle/Bauer-Griffin/FilmMagic

ValueAct's investment plan for Disney is centered on strong cash flows from its parks and consumer products, and the expectation that the streaming wars are ending, according to the activist fund.

Why it matters: If Disney's performance matches ValueAct's thesis, it will help solidify support around CEO Bob Iger and the board. If the stock continues to lag, ValueAct's patience will wear thin, as will its support.

Details: ValueAct's view on Disney was revealed not in a press release or a traditional financial media outlet but rather in an interview with 13DMonitor, a research firm that specializes in activist investing.

  • The firm, run by founder Ken Squire, produces a monthly PDF newsletter, in which ValueAct co-CEO Mason Morfit was featured this month.

What they're saying: "Our thesis on Disney has two legs. First, Disney parks and consumer products are GREAT businesses that, on their own, we believe are worth $80 to shareholders. So you're getting the media assets for almost nothing," Morfit told the newsletter.

  • Morfit added that Disney's parks are high-return assets that are growing fast and provide an "extra window" to monetize stories and IP. It's a cash flow boost that Netflix, Warner Media Discovery and Paramount don't have, he added.

Zoom in: Morfit said the second leg of the thesis is that the streaming wars are about to end.

  • "At this point, I think everyone can admit that 13 different major streaming services all going it alone was a big mistake. In the future, there will be fewer streamers with bigger bundles of content that are easier to access," he said.

Of note: Morfit, when ValueAct was represented on Fox's board, sat across from Iger during the Fox-Disney entertainment assets deal in 2017-18. Morfit says he's since sought Iger's counsel on ValueAct investments in the New York Times, Nintendo and others.

  • "His track record in media is pretty much unparalleled," Morfit said of Iger in the interview, touting Iger's diplomacy. "We are going to help him as best we can."

Editor's note: This story has been corrected to reflect that Morfit represented ValueAct (and was not on Fox's board) when he sat across from Iger in 2017-18.

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