Chris Bloomstran: Disney’s Myriad Of Capital Allocation OptionsThe Acquirer's Multiple
In response to Dan Loeb’s letter to Disney, Chris Bloomstran has written his own letter to Disney CEO Robert A. Chapek, encouraging him to “not act by reflexively endorsing the “advice” of well-known activist hedge fund managers.” Instead he’s suggesting a myriad of alternatives regarding its capital allocation. Here’s an excerpt from that letter:
Instead of presuming to tell you that the best alternative use of capital is to increase spending on content at this time, as Mr. Loeb does, rather we’d note you have myriad options regarding capital allocation, in whole or in part, at your disposal. These options, not exhaustively and in no particular order of our preference, include:
∙ Retiring a portion of the now cumbersome debt taken on to finance the Twenty First Century Fox acquisition and the debt logically taken on to increase liquidity during the pandemic.
∙ Make any bolt-on acquisitions that add materially and accretively to normalized profitability and to the permanence of the Disney franchise and brand.
∙ Repurchase shares of common stock in the open market, presuming they are sufficiently undervalued relative to a conservative appraisal of intrinsic value and are only made with surplus capital not needed to maintain liquidity and the safety of the business, further assuming any stress produced by ongoing economic weakness.
∙ Increase content, capital, research & development or advertising spending at the parks or in the studio and media businesses.
You can read the entire letter here:
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