Investor Daniel Loeb Backs Off Disney-ESPN Sale Proposal, Citing ‘Better Understanding’ of Company’s ‘Growth and Innovation’ Plan

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Activist investor Daniel S. Loeb of Third Point has backed off his proposal from last month for Disney to divest itself of ESPN in order to devote even more resources to content creation for streaming platforms.

Loeb sent two Twitter messages early Sunday morning that amounted to an olive branch to Disney and its CEO Bob Chapek. Loeb said he had gained a “better understanding” of Disney’s plans to more deeply integrate ESPN into its direct-to-consumer operations and the emerging Disney bundle of channels. The social media missive signals that Loeb will not step up his public pressure on Disney and seek to field an alternative slate of directors at the company’s annual meeting next spring.

“We have a better understanding of @espn’s potential as a standalone business and another vertical for $DIS to reach a global audience to generate ad and subscriber revenues. We look forward to seeing Mr. Pitaro execute on the growth and innovation plans, generating considerable synergies as part of The Walt Disney company,” Loeb wrote.

Loeb made headlines on Aug. 15 when he issued an open letter to Disney calling for the company to divest ESPN and accelerate its acquisition of Comcast’s outstanding 33% stake in Hulu. Loeb revisited an argument that has been gaining steam in investor circles for more than decade that ESPN and Disney would be better off as separate entities.

But in interviews with Variety and other media outlets on Saturday against the backdrop of the massive D23 Expo fan convention in Anaheim, Chapek made it clear he has no intention of parting with ESPN, the sports TV powerhouse — quite the contrary. Chapek hinted that Disney is preparing for the future of its direct-to-consumer operations with a new platform that more deeply integrates ESPN alongside the brands of Disney, Marvel, Lucasfilm, Pixar, ABC, National Geographic, 20th Century Studios and more on the over-arching Disney+ streaming platform. ESPN is a rare example of a longterm joint venture for Disney, with Hearst Corp. maintaining a 20% ownership stake in the worldwide leader for decades.

“You can look at this from two different ways, from the guest standpoint or from a commercial standpoint or a shareholder standpoint. Does it actually make sense? And I think that in Dan’s case he was more asking the question, is this the right business combination for the company?,” Chapek told Variety on Saturday. “Our investors only know what we’ve shared with them to date. They don’t really know what our plans are for the future. We’ve got very ambitious plans for sports.”

Chapek also pointed to long-term planning that involves ESPN and Hulu, the two entities that Loeb targeted in his letter. Chapek would not elaborate but promised a more “fulsome expression” of the company’s plans is coming, though he would not offer a timetable.

“The advertising demand for ESPN speaks volumes. But what else speaks volumes is that when the word was out on the street that maybe Disney will spin off ESPN, we had no less than 100 inquiries of people that wanted to buy it. What does that tell you? That says we’ve got something really good. And if you have a strategic plan, a vision for where it fits into the company over the next 100 years, then you don’t exactly want to divest yourself of it. And we have that plan,” he said.

Chapek indicated strongly that he agrees with Loeb on the strategic importance of Disney buying out the last chunk of Hulu that it does not already own in order to make it part of the bedrock of Disney+.

“The number-one request that we have from Disney+ subscribers is for more general entertainment,” Chapek said. “When people watched ‘Dumbo’ with their kids and they put them to bed, and it’s now 7:30 — those same very same people might not want to watch ‘Bambi,’ right? They want to watch something else, something that’s still capital “D” Disney. And the elasticity of that is much more broad than we ever could have imagined, as exhibited through our experience in Europe, on Disney+, where we have a lot more general entertainment on the (platform). The appetite for general entertainment is enormous. We have lots of general entertainment content within the Walt Disney Co. We just don’t have the full ability to use it because of the complicated ownership situation that we have (in Hulu), at least for the next 16 months.”

Loeb’s letter from last month also pressed Disney to move quickly to scrutinize its cost structure and resource-allocation plan for content. It suggested the company “embark on a cost cutting program that addresses both margins and the disposal of excess underperforming assets” and not restore its dividend. Those elements still stand. Third Point also disclosed that it has been buying up shares in recent months that add up to about a $1 billion stake in Disney as of mid-August.