August 2023 - Capital Returns by Edward Chancellor

We dive into an investing book that covers the capital cycle. In summary, the best time to invest in a sector is actually when capital is leaving or has left.

Tech Themes

1. Amazon. Marathon understands that the world moves in cycles. During the internet bubble of the late 1990s the company refused to invest in a lot of speculative internet companies. “At the time, we were unable to justify the valuations of any of these companies, nor identify any which could safely say would still be going strong in years to come.” In August of 2007, however, several years after the internet bubble burst, they noticed Amazon again. Amazon’s stock had rebounded well from the lows of 2001 and was roughly flat from its May 1999 valuation. Sales had grown 10x since 1999 and while they recognized it had a tarnished reputation from the internet bubble, it was actually a very good business with a negative working capital cycle. On top of this, the reason the stock hadn’t performed well in the past few years was because they were investing in two new long-term growth levers, Amazon Web Services and Fulfillment by Amazon. I’m sure Marathon underestimated the potential for these businesses but we can look back now and know how exceptional and genius these margin lowering investments were at the time.

2. Semis. Nothing paints a more clear picture of cyclicality than semiconductors. Now we can debate whether AI and Nvidia have moved us permanently out of a cycle but up until 2023, Semiconductors was considered cyclical. As Marathon notes: “Driven by Moore’s law, the semiconductor sector has achieved sustained and dramatic performance increases over the last 30years, greatly benefiting productivity and the overall economy. Unfortunately, investors have not done so well. Since inception in 1994, the Philadelphia Semiconductor Index has underperformed the Nasdaq by around 200 percentage point, and exhibited greater volatility…In good times, prices pick up, companies increase capacity, and new entrants appear, generally from different parts of Asia (Japan in the 1970s, Korea in 1980s, Taiwan in the mid1990s, and China more recently). Excess capital entering at cyclical peaks has led to relatively poor aggregate industry returns.” As Fabricated Knowledge points out the 1980s had two brutal Semiconductor cycles. First, in 1981, the industry experienced severe overcapacity, leading to declining prices while inflation ravaged through many businesses. Then in 1985, the US semiconductor business declined significantly. “1985 was a traumatic moment for Intel and the semiconductor industry. Intel had one of the largest layoffs in its history. National Semi had a 17% decrease in revenue but moved from an operating profit of $59 million to an operating loss of -$117 million. Even Texas Instruments had a brutal period of layoffs, as revenue shrank 14% and profits went negative”. The culprit was Japanese imports. Low-end chips had declined significantly in price, as Japan flexed its labor cost advantage. All of the domestic US chip manufacturers complained (National Semiconductor, Texas Instruments, Micron, and Intel), leading to the 1986 US-Japan Semiconductor Agreement, effectively capping Japanese market share at 20%. Now, this was a time when semiconductor manufacturing wasn’t easy, but easier than today, because it focused mainly on more commoditized memories. 1985 is an interesting example of the capital cycle compounding when geographic expansion overlaps with product overcapacity (as we had in the US). Marathon actually preferred Analog Devices, when it published its thesis in February 2013, highlighting the complex production process of analog chips (physical) vs. digital, the complex engineering required to build analog chips, and the low-cost nature of the product. “These factors - a differentiated product and company specific “sticky” intellectual capital - reduce market contestability….Pricing power is further aided by the fact that an analog semiconductor chip typically plays a very important role in a product for example, the air-bag crash sensor) but represents a very small proportion of the cost of materials. The average selling price for Linear Technology’s products is under $2.” Analog Devices would acquire Linear in 2017 for $14.8B, a nice coda to Marathon’s Analog/Linear dual pitch.

3. Why do we have cycles? If everyone is playing the same business game and aware that markets come and go, why do we have cycles at all. Wouldn’t efficient markets pull us away from getting too hyped when the market is up and too sour when the market is down? Wrong. Chancellor gives a number of reasons why we have a capital cycle: Overconfidence, Competition Neglect, Inside View, Extrapolation, Skewed Incentives, Prisoner’s Dilemma, and Limits to Arbitrage. Overconfidence is somewhat straightforward - managers and investors look at companies and believe they are infallible. When times are booming, managers will want to participate in the boom, increasing investment to match “demand.” In these decisions, they often don’t consider what their competitors are doing, but rather focus on themselves. Competition neglect takes hold as managers enjoy watching their stock tick up and their face be splattered across “Best CEO in America” lists. Inside View is a bit more nuanced, but Michael Mauboussin and Daniel Kahneman have written extensively on it. As Kahneman laid out in Thinking, Fast & Slow: “A remarkable aspect of your mental life is that you are rarely stumped … The normal state of your mind is that you have intuitive feelings and opinions about almost everything that comes your way. You like or dislike people long before you know much about them; you trust or distrust strangers without knowing why; you feel that an enterprise is bound to succeed without analyzing it.” When you take the inside view, you rely exclusively on your own experience, rather than other similar situations. Instead, you should take the outside view and assume your problem/opportunity/case is not unique. Extrapolation is an extremely common driver of cycles, and can be seen all across the investing world after the recent COVID peak. Peloton, for example, massively over-ordered inventory extrapolating out pandemic related demand trends. Skewed incentives can include near-term EPS targets (encourages buybacks, M&A), market share preservation (encourages overinvestment), low cost of capital (buy something with cheap debt), analyst expectations, and champion bias (you’ve decided to do something and its no longer attractive, but you do it anyway because you got people excited about it). The Prisoner’s Dilemma is also a form of market share preservation/expansion, when your competitor may be acting much more aggressively and you have to decide whether its worth the fight. Limits to Arbitrage is almost an extension of career risk, in that, when everyone owns an overvalued market, you may actually hurt your firm by actively withholding even if it makes investment sense. That’s why many firms need to maintain a low tracking error against indexes, which can naturally result in concentrations in the same stocks.

Business Themes

1. Capital Cycle. The capital cycle has four stages: 1. New entrants attracted by prospect of high returns: investor optimistic 2. Rising competition causes returns to fall below cost of capital: share price underperforms 3. Business investment declines, industry consolidation, firms exit: investors pessimistic 4. Improving supply side causes returns to rise above the cost of capital: share price outperforms. The capital cycle reveals how competitive forces and investment behavior create predictable patterns in industries over time. Picture it as a self-reinforcing loop where success breeds excess, and pain eventually leads to gain. Stage 1: The Siren Song - High returns in an industry attract capital like moths to a flame. Investors, seeing strong profits and growth, eagerly fund expansions and new entrants. Optimism reigns and valuations soar as everyone wants a piece of the apparent opportunity. Stage 2: Reality Bites - As new capacity comes online, competition intensifies. Prices fall as supply outpaces demand. Returns dip below the cost of capital, but capacity keeps coming – many projects started in good times are hard to stop. Share prices begin to reflect the deteriorating reality. Stage 3: The Great Cleansing - Pain finally drives action. Capital expenditure is slashed. Weaker players exit or get acquired. The industry consolidates as survivors battle for market share. Investors, now scarred, want nothing to do with the sector. Capacity starts to rationalize. Stage 4: Phoenix Rising - The supply-side healing during the downturn slowly improves industry economics. With fewer competitors and more disciplined capacity, returns rise above the cost of capital. Share prices recover as improved profitability becomes evident. But this very success plants the seeds for the next cycle. The genius of understanding this pattern is that it's perpetual - human nature and institutional incentives ensure it repeats. The key is recognizing which stage an industry is in, and having the courage to be contrarian when others are either too optimistic or too pessimistic.

2. 7 signs of a bubble. Nothing gets people going more than Swedish Banking in the 2008-09 financial crisis. Marathon called out its Seven Deadly Sins of banking in November 2009, utilizing Handelsbanken as a positive reference, highlighting how they avoided the many pitfalls that laid waste to their peers. 1. Imprudent Asset-Liability mismatches on the balance sheet. If this sounds familiar, its because its the exact sin that took down Silicon Valley Bank earlier this year. As Greg Brown lays out here: “Like many banks, SVB’s liabilities were largely in the form of demand deposits; as such, these liabilities tend to be short term and far less sensitive to interest rate movement. By contrast, SVB’s assets took the form of more long-term bonds, such as U.S. Treasury securities and mortgage-backed securities. These assets tend to have a much longer maturity – the majority of SVB’s assets matured in 10 years or more – and as a result their prices are much more sensitive to interest rate changes. The mismatch, then, should be obvious: SVB was taking in cash via short-term demand deposits and investing these funds in longer-term financial instruments.” 2. Supporting asset-liability mismatches by clients. Here, Chancellor calls out foreign currency lending, whereby certain European banks would offer mortgages to Hungarians in swiss francs, to buy houses in Hungary. Not only were these banks taking on currency risk, they were exposing their customers to it and many didn’t hedge the risk out appropriately. 3. Lending to “Can’t Pay, Won’t Pay” types. The financial crisis was filled with banks lending to subprime borrowers. 4. Reaching for growth in unfamiliar areas. As Marathon calls out, “A number of European banks have lost billions investing in US subprime CDOs, having foolishly relied on “experts” who told them these were riskless AAA rated credits.” 5. Engaging in off-balance sheet lending. Many European banks maintained "Structured Investment Vehicles” that were off-balance sheet funds holding CDOs and MBSs. At one point, it got so bad that Citigroup tried the friendship approach: “The news comes as a group of banks in the U.S. led by Citigroup Inc. are working to set up a $100 billion fund aimed at preventing SIVs from dumping assets in a fire sale that could trigger a wider fallout.” These SIVs held substantial risk but were relatively unknown to many investors. 6. Getting sucked into virtuous/vicious cycle dynamics. As many European banks looked for expansion, they turned to lending into the Baltic states. As more lenders got comfortable lending, GDP began to grow meaningfully, which attracted more aggressive lending. More banks got suckered into lending in the area to not miss out on the growth, not realizing that the growth was almost entirely debt fueled. 7. Relying on the rearview mirror. Marathon points out how risk models tend to fail when the recent past has been glamorous. “In its 2007 annual report, Merrill Lunch reported a total risk exposure - based on ‘a 95 percent confidence interval and a one day holding period’ - of $157m. A year later, the Thundering Herd stumbled into a $30B loss!”

3. Investing Countercyclically. Björn Wahlroos exemplified exceptional capital allocation skills as CEO of Sampo, a Finnish financial services group. His most notable moves included perfectly timing the sale of Nokia shares before their collapse, transforming Sampo's property & casualty insurance business into the highly profitable "If" venture, selling the company's Finnish retail banking business to Danske Bank at peak valuations just before the 2008 financial crisis, and then using that capital to build a significant stake in Nordea at deeply discounted prices. He also showed remarkable foresight by reducing equity exposure before the 2008 crisis and deploying capital into distressed commercial credit, generating €1.5 billion in gains. Several other CEOs have demonstrated similar capital allocation prowess. Henry Singleton at Teledyne was legendary for his counter-cyclical approach to capital allocation. He issued shares when valuations were high in the 1960s to fund acquisitions, then spent the 1970s and early 1980s buying back over 90% of Teledyne's shares at much lower prices, generating exceptional returns for shareholders. As we saw in Cable Cowboy, John Malone at TCI (later Liberty Media) was masterful at using financial engineering and tax-efficient structures to build value. He pioneered the use of spin-offs, tracking stocks, and complex deal structures to maximize shareholder returns while minimizing tax impacts. Tom Murphy at Capital Cities demonstrated exceptional discipline in acquiring media assets only when prices were attractive. His most famous move was purchasing ABC in 1985, then selling the combined company to Disney a decade later for a massive profit. Warren Buffett at Berkshire Hathaway has shown remarkable skill in capital allocation across multiple decades, particularly in knowing when to hold cash and when to deploy it aggressively during times of market stress, such as during the 2008 financial crisis when he made highly profitable investments in companies like Goldman Sachs and Bank of America. Jamie Dimon at JPMorgan Chase has also proven to be an astute capital allocator, particularly during crises. He guided JPMorgan through the 2008 financial crisis while acquiring Bear Stearns and Washington Mutual at fire-sale prices, significantly strengthening the bank's competitive position. D. Scott Patterson has shown excellent capital allocation skills at FirstService. He began leading FirstService following the spin-off of Colliers in 2015, and has compounded EBITDA in the high teens via strategic property management acquistions coupled with large platforms like First OnSite and recently Roofing Corp of America. Another great capital allocator is Brad Jacobs. He has a storied career building rollups like United Waste Systems (acquired by Waste Services for $2.5B), United Rentals (now a $56B public company), XPO logistics which he separated into three public companies (XPO, GXO, RXO), and now QXO, his latest endeavor into the building products space. These leaders share common traits with Wahlroos: patience during bull markets, aggression during downturns, and the discipline to ignore market sentiment in favor of fundamental value. They demonstrate that superior capital allocation, while rare, can create enormous shareholder value over time.

   Dig Deeper

• Handelsbanken: A Budgetless Banking Pioneer

• ECB has created 'toxic environment' for banking, says Sampo & UPM chairman Bjorn Wahlroos

• Edward Chancellor part 1: ‘intelligent contrarians’ should follow the capital cycle

• Charlie Munger: Investing in Semiconductor Industry 2023

• Amazon founder and CEO Jeff Bezos delivers graduation speech at Princeton University

January 2023 - Ride of a Lifetime by Bob Iger

This month we look at the recent history of Disney and its famous leader, Bob Iger.

Tech Themes

1. Creative Trust. Bob began his career at ABC Television, eventually working his way into ABC Sports and their newly acquired Entertainment and Sports Programming Network (ESPN). Their Bob came under the toutalege of Roone Arledge, a famous broadcast executive known for his commitment to storytelling, and his lack of compassion for sub-par work. Bob saw first hand how Roone would get close to the start of production, only to make several last minute tweaks to the overall program, sometimes throwing out all of the work that had been done to offer the audience a better program. Bob understood this creative process was messy and inefficient, but crucial to producing high quality programming. After ABC was acquired by Capital Cities, Tom Murphy and Dan Burke promoted Iger into a new role as head of ABC entertainment. Upon being handed a stack of 40 scripts on his first day, Bob wondered what he was even supposed to be looking for in a script. “I started to realize over time, though, that I’d internalized a lot by watching Roone tell stories all those years.” In his first season as president, Iger decided to go ahead with an off-putting, creepy drama directed by David Lynch called Twin Peaks. At one point, Murphy was so concerned about airing the show, that he told Bob, “You can’t air this. If we put it on television, it will kill our company’s reputation.” Iger pushed back, enthralled that the creative community love the risk the network was taking. A 1990 New York Times article spells out the risky show’s language: “The offending usage was in a Wall Street Journal story about Robert Iger, a bold television producer: ''Even if 'Twin Peaks' caves in, it has already won ABC new cache in Hollywood as the hands-off network, eager for ideas that are daring and different.'' Iger learned early, it pays to take big and bold risks, especially with the creative community.

2. Bob Iger and Steve Jobs. One of the first things Bob Iger did when he became CEO of Disney was call Steve Jobs. Disney’s prior CEO, Michael Eisner, had spent years arguing a battle for who had the better legal position in the Disney-Pixar distribution relationship. Pixar had succeeded everyone’s wildest dreams with films like Toy Story, A Bug’s Life, and Finding Nemo, but Disney wanted full control of Pixar’s characters and the rights to film sequels. Iger describeds the kerfuffle: “Steve’s animosity toward Disney was too deep-rooted. The rift that had opened between Steve and Michael [Eisner] was a clash between two strong-willed people whose companies’ fortunes were going in different directions. When Disney Animation began to slip even further, Steve became more haughty with Michael because he flet we needed him more, and Michael hated that Steve had the upper hand.” Iger, ever the flatterer discussed with Jobs how he loved his iPod and wanted to put Disney shows on future generations of the device. Steve responded by showing Iger the new iPhone prototype they were developing. They agreed on a deal and Iger strode on stage at the iPod video launch in 2005. In his first board meeting as official CEO, Iger proposed buying Pixar. The company was half owned by Steve Jobs, who had bought it from his friend and Star Wars creator George Lucas for a measly $5 million (plus several $20-30m equity checks). After receiving approval from the board to look at an acquisition, Iger called Jobs from his car phone: “I’ve been thinking about our respective futures, What do you think about the idea of Disney buying Pixar?” Jobs responded - “You know, that’s not the craziest idea in the world.” A few weeks later, the two sat in the Apple boardroom sketching a simple pros and cons list on the whiteboard. For all of the math and financial analysis that goes into an acquisition, its hilariously to envision Steve and Bob doing what anyone would do to analyze an acquisition. “Two hours later, the pros were meager and the cons were abundant, even if a few of them, in my estimation were quite petty…’A few solid pros are more powerful than dozens of cons,’ Steve said." The agreement was negotiated an in 2006, Disney acquired Pixar for a $7.4B equity value. Right before the merger was announced, Steve took Bob for a walk around Apple’s campus, and told him that his cancer had returned. “He told me the cancer was now in his liver and he talked about the odds of beating it. He was going to do whatever it took to be at his son Reed’s high school graduation, he said. When he told me that was four years away, I felt devestated. It was impossible to be having these two conversations - about Steve facing his impending death and about the deal we were supposed to be closing in minutes - at the same time.” The deal ultimately closed and Jobs became Disney’s largest shareholder and a board member at the company, during which Disney’s stock performed very well.

3. BamTECH. When Iger became CEO, he launched a three part plan to return Disney to the top of media and creativity. The plan was clear: “1) We needed to devote most of our time and capital to the creation of high quality branded content. 2) We needed to embrace technology to the fullest extent, first by using it to enable the creation of higher quality products, and then to reach more consumers in amore modern, more relevant ways. 3) We needed to become a truly global company.” If Pixar, Marvel, and Lucasfilm were an answer to part one, BAMTech was the answer to part two. Baseball Advanced Media Technologies was a company founded by Major League Baseball in 2000 to build out a digital radio streaming service for overseas listeners to the MLB playoffs. MLB Advanced Media was funded by a $1 million investment by each of its 30 teams for four consecutive years. Following a successful launch, BAMTech decided to try streaming live video of baseball games and launched MLB.tv, which soon became a major leader in streaming. Other leagues began to pay attention and soon the NHL had signed up BAMTech as its streaming partner, taking a 10% stake in the company. Soon ESPN, HBO, and the PGA Tour all signed on too. Disney used BAMTech as a back-end partner for the launch of its WatchESPN platform in 2010. So it was a natural extension for Iger, fresh off the massive success of the Pixar, Marvel, and Lucasfilm acquisitions, to try to buy the company. In 2015, BAMTech was officially spun out of the MLB, and in August 2016, Walt Disney acquired 33% of the company in August 2016 for $1B, valuing the streaming platform at $3B. In 2017, it upped its stake to 75% for another $1.58B, then in August 2021 it acquired the NHL’s 10% interest. Finally, it bought the remaining 15% interest from the MLB for $828m in October 2022. Amazing companies can come from anywhere. Based on some simple rough math, the MLB earned a 23% IRR on initial $120m investment from 2000 to 2022, a 28x return.

Business Themes

1. The Guide of Experience. Its clear that Bob Iger was molded into an incredible businessman through a series of experiences that almost no one could predict would create to such a compelling leader. Because Iger began in the TV industry at ABC, he began the habit of waking up absurdly early, a trait shared by many successful leaders. “To this day, I wake nearly every morning at four-fifteen, though now I do it for selfish reasons: to have time to think and read and exercise before the demands of the day take over.” After moving over to sports, Bob learned the importance of high quality from Roone Arledge, but he also developed one of his greatest traits, finding compromise among competing interests. “In 1979, the World Table Tennis Championships were being held in Pyongyang, North Korea. Roone called me into his office one day and said, ‘This is going to be interesting. Let’s cover it on Wide World of Sports.’ I thought he was joking. He surely knew it would be impossible to secure the rights to an event in North Korea. He wasn’t joking. I then embarked on a worldwide pursuit to secure the rights. After a few months of intense negotiations, we were on the eve of closing the deal when I received a call from someone on the Asian desk in the U.S. State Department. ‘Everything you are doing with them is illegal,’ he said. ‘You’re in violation of strict U.S. Sanctions against doing any business with North Korea…’ I eventually arrived at a workoaround that involved securing the rights not through the host country but through the World Table Tennis Federation. The North Korean government, though we were no longer paying them, still agreed to let us in, and we became the first U.S. media team to enter North Korea in decades - a historic moment in sports broadcasting.” When ABC was purchased by Capital Cities, Bob began his relationship with Dan Burke and Tom Murphy. Warren Buffett famously praised the pair: “Tom Murphy and [his long-time business partner] Dan Burke were probably the greatest two-person combination in management that the world has ever seen or maybe ever will see.” Iger learned tons about business, acquisitions, budgeting, and decentralized management from Tom and Dan. They also gave Iger numerous opportunities to prove himself and take risks, like the Twin Peaks launch. Later, when Cap Cities was acquired by Disney, Iger gained a front-row seat to Michael Eisner’s leadership style. Eisner was once regarded as one of the best CEOs in the world, but languished as the stress of managing a massive company caused him to become increasingly defensive and depressed. Despite sharing a complicated relationship, Iger learned a lot about managing Disney from Eisner, including what he didn’t want to do once he got the role. In hindsight, its no surprise that Iger became the leader he became, even though it wasn’t clear as it was unfolding.

2. A tale of M&A. Although Disney sticks in people’s minds as a family friendly media company, its sprawling empire has grown to include ABC, ESPN, Marvel, the Simpsons, Star Wars, Pixar, Marvel, Hotstar, National Geographic, Hulu, 20th Century Studios, X-Men, Deadpool, Fx, Disney World, Disney Cruise Line, and Disney+. This empire was constructed through many M&A deals. The first major M&A deal was the 1995 $19B Disney, Capital Cities merger, which was the second largest corporate takeover (to KKR’s RJR Nabisco LBO) ever. Warren Buffett became one of the largest shareholders of Disney, which he sold over the next few years, only to massively miss out on the growth of ESPN and eventually the content domination that Iger began. The deal took a while to digest, and vastly expanded Disney’s operations. Eisner’s legendarily poor hire of talent agent Michael Ovitz compounded pressures, and Eisner relied even more heavily on Disney’s Strategic Planning group to make corporate decisions. From 1995 to 2005, Disney’s stock increased only 25%, and Eisner was forced out in a brutal, public proxy battle. Once Iger took over, he collapsed the Strat Planning department under rising star Kevin Mayer, and began the series of acquisitions that marked his tenure. After Pixar, Iger turned to Marvel, which was stumbling along as a comic book and toy producer to a shrinking population of interested buyers. Despite its relatively small size, Marvel had a fascinating corporate history. In the late 80’s, Ron Perelman, billionaire businessman, bought Marvel for a mere $82m. However, after the comic book boom faded, Marvel fell into bankruptcy, and Icahn stepped in to buy Marvel’s distressed debt eventually becoming chairman of the board through a protracted legal process. At the last second, Ike Perlmutter and Avi Arad, managers of the largest susidiary of Marvel, Toy Biz, proposed a better offer to the bankruptcy court, and eventually wrestled control away from both Perelman and Icahn. By the time Disney came knocking in 2008, Marvel was beginning to produce its own films, after several successful Spider-Man and X-men films. While a lot of Disney executives believed Marvel was too edgy for Disney, Iger took a longer term view and bought the company for $4B, which has clearly paid off. Alongside the acquisition of Marvel, Disney invested about $100m for a 30% stake in a new streaming service created by NBC and News Corp called Hulu. Next, Iger turned to Lucasfilm, the maker of Star Wars. George Lucas was very reluctant to sell to Disney, and it took four and half years of convincing: “We went over and over the same ground - George saying he couldn’t just hand over his legacy, me saying we couldn’t buy it and not control it - and twice walked away from the table and called the deal off. (We walked the first time and George walked the second).” Eventually, Disney acquired Lucasfilm for $4.05B, another great content acquisition that has worked out well. While Iger is credited with these amazing acquisitions, his latest and biggest acquisition has raised the most questions for Disney. In 2017, Disney announced it would buy 20th Century Fox for $52B in stock, and the assumption of $13.7B of Fox’s net debt. However, the deal faced a long regulatory approval process, during which the US Justice Department ruled in favor of AT&T buying Time Warner. With what seemed like a favorable M&A environment, Comcast entered the fray, proposing an all cash bid at $35 a share or $64B. Disney upped its offer to $38 a share, half in cash and half in stock. Fox accepted Disney’s new bid (of $71B), and Disney closed the deal in March of 2019. While the deal did bring X-men, Deadpool, Fantastic Four, the Simpsons, Family Guy, it added $19B of debt to its balance sheet. In addition, Disney spent time selling Fox’s Sky ownership to Comcast, and the regional sports networks owned by Fox. These divestitures were necessary for the regulatory approval of the deal and netted Disney $24B ($15B from Sky and $9.6B from the sports networks). Covid through Disney for a loop, and its higher leverage from the Fox deal, caused the elimination of its dividend, and an obvious massive reduction to its parks business. Time will tell if the Fox Deal yields the same great results that Pixar, Marvel, and Lucasfilm produced - I wonder if this wasn’t too big for the integration risk entailed.

3. Walt Proxy. Disney has a rich history in not only animated characters but business characters as well. The company has repeatedly been subject to proxy battles. Iger’s first proxy battle began slowly then grew into a massive public boardroom debate. In 2002, Roy E. Disney and Stanley Gold, expressed their disappointment in Michael Eisner’s choices as CEO of Disney, sending a letter to the board demanding his removal. Eisner retailiated, “turning to the company’s governance guidlines regarding board member tenure, which stipulated that board members had to retire at age seventy-two. Rather than telling Roy himself, though, Michael had the chairman of the board’s nominating committee inform him that he would not be allowed to stand for reeelection and would be retired as of the next shareholders meeting in March 2004.” Roy began a public campaign called “Save Disney” where he called for Michael’s retirement and for him to rejoin the board. At the same time, Comcast launched a hostile bid for Disney. While Comcast would eventually find its content companion in NBC/Universal years later, this bid added heat to the situation. Comcast was unable to complete its bid, but the shareholder vote still turned out poorly for Eisner, with 43% of shareholders withholding support for him as CEO. He was promptly stripped of his chairman title, and in the fall of 2004, announced his resignation at the end of his contract in 2006. Fast forward to 2023, and Disney is back in the proxy battle world, this time facing up against Nelson Peltz, the famous activist investor. Under scrutiny are Disney’s acquisition of Fox, its exorbitant streaming losses, the cancellation of its dividend, the massive debt load it carries, and its large Netflix-competing content spend. The board recently announced that Iger would come back as CEO, despite clearly saying his time was over in the book. Iger’s successor, Bob Chapek, had a terrible run as Disney CEO, including shutting down the company, a public row with the State of Florida and Scarlett Johansson, and a centralization process that took control away from the creatives. I guess the Ride of a Lifetime is not over.

   Dig Deeper

• The Complete History Of Walt Disney World, Part 1 (1960s-1996)

• Bob Iger: I felt a sense of obligation to return to Disney as CEO

• Steve Jobs and John Lasseter interview on Pixar (1996)

• Tom Murphy Interview | Michael Eisner Interview | Bob Iger Interview 2011

• Restore the Magic Trian Partners Presentation