Dan Loeb’s Third Point Takes New Stake in Disney and Urges ESPN Spinoff

In a letter to Disney (ticker: DIS) CEO Bob Chapek obtained by Barron’s, Third Point CEO Daniel Loeb wrote that his firm purchased a “significant stake in the company” after Disney reported quarterly results that “pleased” him. He had owned Disney stock but sold the shares, according to Bloomberg data.

“We have had over two years to observe management navigate the most challenging time in Disney’s history,” Loeb wrote. “This quarter’s results are an important proof point that Disney’s complex transformation is succeeding and our confidence in Disney’s current trajectory is such that we have, in recent weeks, repurchased a significant stake in the Company.”

Disney reported better-than-expected earnings and subscriber growth for its fiscal third quarter last week along with an announcement that it will raise the subscription cost for streaming service Disney+.

Loeb also wrote that a “strong case can be made” for spinning off ESPN, arguing that the sports channel “would have greater flexibility to pursue business initiatives that may be more difficult as part of Disney, such as sports betting.”

“Customers of ESPN and sports leagues would be better served by a focused management team driving a leadership position in sports distribution,” Loeb said.

Spinning off ESPN wasn’t the only suggestion Loeb made in his letter to Chapek. He urged Disney to “embark on a cost-cutting program,” saying he believes that the company’s costs “are among the highest in the industry” and that the entertainment company “significantly underearns relative to its potential.”

Other suggestions from Loeb included integrating streaming platform Hulu directly into the Disney+ DTC platform and continuing the suspension of paying a cash dividend to shareholders.

Disney responded to the letter from Loeb in a statement on Monday. The company said it welcomed “the views of all our investors.” Disney added that under the leadership of Chapek, the company has delivered “strong performance while navigating the Covid pandemic and its aftermath,” and the “independent and experienced Board has significant expertise in branded, consumer-facing and technology businesses as well as talent-driven enterprises.”

Write to Angela Palumbo at angela.palumbo@dowjones.com