Trian Partners Activist Presentation Deck
January 2023, 35 slides
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partners restore the magic | Trian Partners
disclosure statement and disclaimers confidentiality | Trian Partners
disclosure statement and disclaimers continued | Trian Partners
why is here today is the global scale brands inimitable parks monetize its intellectual property for these reasons we believe the company is well positioned and can leverage the flywheel to unrivaled a however recent share over year year year and year periods shares are currently trading at an year low operating performance has deteriorated including a decline in since we believe that current investor sentiment on is low reflecting the hard truth that is in crisis and faces many challenges that weigh on the company investment while we acknowledge that like we pivot to streaming we that and need to be addressed media is a experience investing in and serving on the board of directors of blue chip companies and working collaboratively with management teams and boards to optimize corporate governance strategy operations and capital allocation we recognize that is undergoing a lot of change quickly and are not to fight the addition of qualified together with board mem | Trian Partners
is trading at an year low year share price performance it currently trades near its year low | Trian Partners
overview a tee kraft foods ona pind by tiffany a a | Trian Partners
what differentiates a engaged orientation operations strategy focused boards | Trian Partners
long track record of value creation with nelson on the board has worked closely with numerous companies across industries and has demonstrated a track record of term value creation with multiple turnarounds investments where nelson served on the board company during board tenure most importantly we seek to help companies we invest in achieve value creation through improved operating and financial performance increasing investments to drive top line growth and market share performance reducing costs overhead in areas that impede the company ability to compete effectively optimizing capital allocation decisions to improve return on invested capital | Trian Partners
the gamble company case study is a year old global consumer products company with a portfolio of iconic brands and leading scale and market share across categories however peg had over an extended period of time total shareholder return both its peers and the total return index in the previous lost market share across and geographies flat and growth following factors to fix its market share erosion and low organic sales growth dismantle the matrix structure increase accountability reduce bureaucracy and excessive costs inability to leverage scale in existing organizational structure aging brands and a lack of breakthrough innovation insular culture that rejected external perspectives and ideas in nominated nelson for election to the board in after a contested proxy contest where received the support of leading proxy advisory services iss and glass lewis peg announced that nelson would be | Trian Partners
case study gamble overhauled its matrix structure prior to involvement had over an extended period of time believed that organizational structure was preventing the company from realizing its potential following a proxy contest nelson joined board in march and worked collaboratively with management the board and external advisors to evaluate a new organizational structure designed to matrix the company and create end to end and operational old structure stew ceti we believe this is tie most organizational chaos we made in the last years former of | Trian Partners
peg case study simplification dramatically improved performance or | Trian Partners
has developed strong relationships with company boards and management teams following prior proxy contests has been involved in three proxy contests i in in and in three we heard substantially the same rhetoric from the companies and their advisors prior to the proxy contest however management views of and nelson we subsequently developed strong and positive relationships with all three boards and management teams | Trian Partners
total shareholder return consistently a i i a a peers i a ara i | Trian Partners
financial performance has been change in financial performance since change in perform a a of revenue decrease in anda a bases in the most directly of | Trian Partners
guidance raises serious questions can management does have the ability to effectively manage its business revenue guidance operating income guidance segment me in the high digits of and our own estimate of for the massive downgrade is much higher than that parks it appears that the he | Trian Partners
has under this board watch while bob just joined the board he has essentially served on the board since with there are still several current directors and members of management who oversaw and approved some of worst corporate governance and strategic failures including overpaying for the fox acquisition the expanding streaming losses and over the top compensation packages granted to bob a maria mark parker a rice amy chang | Trian Partners
a strong case for change at capital allocation since has been cut in half despite spent on a and content approximately equal to entire current market cap management has shown poor judgment on recent a including overpaying for the century fox fox assets and bidding aggressively for sky increased financial leverage and deteriorating cash flow resulted in eliminating the dividend even as covid receded and parks surpassed historical levels fra corporate governance poor shareholder engagement board and leadership consistently failed on succession planning over the top compensation practices corporate strategy and operations reaching similar revenues as and having a significant intellectual property advantage lack of overall cost discipline in the parks business to subsidize streaming losses | Trian Partners
a and growth investments have been dilutive while growth investments and a have contributed to total revenue growth of between has declined over the same period incremental invested capital adjusted cap today a a | Trian Partners
son materially overpaid for the fox assets appears to have paid for fox traditional media assets hulu whereas comparable media transactions were completed at the fox deal created a massive incremental goodwill balance of had to rely on an ultra aggressive synergy assumption which would imply a while difficult to quantify we believe that fox earnings power implying an even higher multiple paid than the paid at closing see following pages has fox equity purchase price share fox sale yes network hulu stake fox traditional media film so | Trian Partners
fox acquisition has not delivered promised financial benefits a operating profit excluding parks experiences and products of is below the pro operating profit of at the time of the in even excluding streaming losses operating profit this begs the question is there a large fox write down on the horizon how does fox synergies pro | Trian Partners
fox acquisition increased leverage dramatically investors are still paying for the fox deal as works to reduce its leverage is also expected to buy stake in hulu in which will keep its leverage profile well above historical levels for years net financial leverage except for spending more than they have now investing club a | Trian Partners
an acquisition of sky by would have permanently impaired shareholder value final bid in valued sky at some analysts today estimate it is currently worth below final offer this bid represented a premium to original offer and a premium to the implied sky enterprise value unaffected original offer final offer share final offer valuation | Trian Partners
and would have put even more stress on balance sheet had purchased sky on top of the fox deal would have paid pro it compare fox sky transaction overview except share amt fox equity purchase price met debt sky fox sky net leverage pro fox sky a | Trian Partners
earnings and are not expected to recover to levels for another years diluted consensus free cash flow consensus despite benefiting from bin price free cash flow profile has deteriorated to provided no timetable to when if will be reinstated foes a a a | Trian Partners
its dividend in eliminated its dividend as it faced cash flow challenges caused by the covid pandemic significant streaming investments and its over levered balance sheet ears with emphasis placed on growing has not provided a timetable for restoring the dividend beyond achieving fox leverage levels which could take years i dividend represented to shareholders | Trian Partners
shareholder engagement process or lack thereof is indicative of poor governance why did bob and the board invite nelson to meet in person three years ago to hear his views on and barely give him the same opportunity three years later in our view shareholder engagement process has been among the worst if not the worst of all the companies we have interacted with it important for shareholders to know that yen has a constructive with on and bob bob about his views on the company in started a discussion with bob about the challenges and opportunities facing the company and requested a board seat for nelson shortly after our conversation the board abruptly fired bob and since me rejected nelson for a boar seat fat in an prior to turning down hearing us out in every engagement where has asked for board we were invited to | Trian Partners
the succession process is broken has failed to execute on succession planning one of the most important responsibilities less than three years after he stepped down but remained executive chairman board reportedly reached to on on by three years suggests the board lacks a robust succession process extend his contract and completely misread the state of bob performance even more puzzling if streaming was to be central focus why was bob ever made to begin with the decision itself appears flawed given bob lack of experience on the media side of the business which led to bob being appointed as executive chairman and head of creative endeavors preventing bob from establishing himself as the clear leader of the the was dealt a tough hand by the pandemic yet with bob at the helm our businesses from parks to streaming not only weathered the storm but emerged in a position of strength in this important time of growth and transformation the board is committed to keeping on successful pan it is on today and leadership is key achieving bob | Trian Partners
succession has been a time issue for board most notably the board extended bob agreed upon retirement date five separate times between and by continuing to extend bob contract rather than actively developing potential jay and further appointing bob as executive chairman for years as an outgoing in our view was risky corporate governance decision as it set up his successor to fail with the prior constantly watching over their shoulders this is exactly what transpired bob signs contract extension where he will remain chairman through march and will serve as executive chairman through june bob transition and will direct the company creative endeavors | Trian Partners
executive compensation must be with performance from bob received in total compensation despite poor compensation would have been even higher had shareholders not voted against the pay package that he received in as a reward for the fox deal the board agreed to reduce his compensation in order to increase its say on pay vote and appease shareholders in the original pay package bob compensation detail total compensation represents delta | Trian Partners
streaming strategy ready fire aim we are concerned with how streaming strategy has evolved under the board oversight while we believe started as a niche extension of franchise flywheel it has rapidly shifted to the core distribution channel for the majority of leading to significantly ramp up investment to drive new subscriber growth at all costs however in our view management failed to effectively communicate the financial rationale behind the strategic pivot as the profitability guidance has not changed while the change in strategy put significant stress on balance sheet and cash flow profile target guidance current targets current change subs no change he mange | Trian Partners
has lost in streaming to date with more losses coming since has lost a cumulative in its streaming business management expects the streaming business to break even in which means two more years of expected losses cumulative segment losses a have grown to and are scares pine | Trian Partners
does not leverage its substantial scale in streaming is guiding to operating profit in when the market expects the business to generate of revenue that operating profit in is expected have of current revenue but still lose money see margin sept | Trian Partners
current streaming generates dis in streaming than dis segment appears to be less cost efficient than is leading spends to inefficiencies production spends expenses than dis i a i i ves programming production costs other expenses margin sept | Trian Partners
we believe lacks cost discipline as an organization growth by sales costs i also to absorb come up with a way kind of mitigate some of these challenges that we have us a little bit of head inflation but we aly use our hers | Trian Partners
we fear is over earning in domestic parks to subsidize streaming losses has historically relied on price to drive growth and margin at domestic parks which we believe is an unsustainable growth strategy with more muted attendance growth this has shifted dramatically earnings call the recurring issues and complaints related to cast member wages while the parks valuable employees are a crucial component of driving better guest experiences domestic parks operating income domestic parks of operating income may believe that price increases and nickel and diming of cast members arid other costs is good for the bottom line however we suspect it is short term thinking that puts the brand value and long term health of the business at risk i | Trian Partners
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