ValueAct Capital Partners’ recent deal with Disney marks the latest in a multi-year track record of playing the proverbial white knight for companies that are already under pressure from other activists.

Disney started the year facing demands from three activists: Trian Fund Management, Ancora Advisors and Blackwells Capital – two of which have demanded board seats while all want board reform. Instead of making peace with any one of them, the media giant announced an information-sharing agreement with ValueAct, which in turn committed to supporting Disney’s slate of director nominees at the 2024 annual meeting.

“ValueAct Capital has a track record of collaboration and cooperation with the companies it invests in, and its co-CEO Mason Morfit has been very constructive in the conversations we’ve had over the past year,” said Disney CEO Robert Iger in a January 3 announcement. “We welcome their input as long-term shareholders.”

The white knight

According to Diligent Market Intelligence (DMI) data, since 2013, San Francisco based ValueAct has gained 14 board seats via settlement agreements at 11 companies that already had an activist in their stock. In seven cases, companies were already facing activist demands. That figure does not include cases such as Disney where ValueAct threw its support and money behind an embattled management team at a critical moment without joining the board.

“It’s just ValueAct being ValueAct,” noted Jim Rossman, global head of shareholder advisory at Barclays.

Rossman observed a similar pattern between the Disney agreement and the January 2023 deal that ValueAct etched out with Salesforce that gave the firm’s CEO Mason Morfit one of three refreshed board seats. That deal came days after Elliott Management declared a multi-billion-dollar investment in the business-software provider. Starboard Value, Third Point and Corvex Management had also been agitating for change.

Elliott subsequently dropped its board nominations, citing the company’s “recently revealed strategy that prioritizes profitability and shareholder value creation,” while the other activists held their fire.

In similar circumstances, U.S. auto parts manufacturing company LKQ Corp. gave ValueAct a seat in 2020 as it faced off against New Mountain Vantage Advisers and Sachem Head Capital Management. In 2015, Twenty-First Century Fox gave ValueAct a seat as it faced pressure from Citadel Advisors, GAMCO and Sachem Head, with Rupert Murdoch at the time pointing to its “highly-valued relationship” with Jeff Ubben, co-founder of ValueAct. The same year, U.K.-based Rolls-Royce was targeted by Andvari Associates and Sequoia Financial Group and subsequently gave ValueAct a seat in early 2016.

The ValueAct process

“ValueAct has always been on the more benign side of activism,” said Rossman, “In fact they’re almost unique in presenting themselves as being private-equity style investors who invest in public companies.” He described what he called “the ValueAct process” where the firm first carries out intensive research on a company and its sector, takes a limited stake and builds a relationship with management. Only later will the activist decide whether it needs a board seat to add more value to the situation.

Taking such a “good cop” approach might also help ValueAct convince portfolio companies to make reforms without resorting to an expensive and time-consuming proxy fight, Ben Fackler, a partner on Arnold & Porter’s activism defense team, told DMI.

“It’s a smart move because if you’re trying to push through certain changes, you can always say [to management], ‘do what we recommend because, you know, there are bad cops out there.’”

Reputational damage

While ValueAct may be popular with corporate boards, its tactics have drawn complaints from other activists.

“I don’t understand the tweaks in their approach towards this ‘white knight’ model. I think it’s damaging their reputation in the investor community,” stated an activist fund manager with experience of ValueAct intervening in a campaign. He acknowledged that in some cases ValueAct may have an existing long-term stake and is looking to protect its own interests. “But when it comes to conflict between investors, I don’t think it’s good for the investor community when things like this happen,” said the activist, who requested anonymity to avoid damaging relationships.

“We have a lot of respect for ValueAct and in fact think of ourselves as being like them,” commented another West Coast activist fund manager. “But if I’d invested the time and money to launch a campaign and they came in like that, I’d be pissed off.”

Saving Disney

Despite more recent interventions, ValueAct’s style of friendly, long-term activism doesn’t always work. Exxon Mobil preemptively placed ValueAct co-founder Jeff Ubben on its board in 2021 as it faced a campaign led by ESG-focused Engine No.1. Ubben had recently left ValueAct to launch his own fund, Inclusive Capital. But Exxon highlighted Ubben’s prior role at ValueAct, which it called “an investment firm emphasizing strong, constructive relationships with company management teams and boards.” Despite Ubben’s high-profile support, Engine No.1 still won three seats.

ValueAct also joined the board of Bausch Health, formerly Valeant Pharmaceuticals, in 2015, heading off Paulson & Co and Pershing Square Capital Management. Yet the company subsequently faced a series of serious financial crises, including a multi-million-dollar fraud case perpetrated by one of its senior executives and underwent a 2018 reorganization.

And despite ValueAct’s public support for Disney’s management, the entertainment company remains in the sights of other activists. On January 18, Trian filed a preliminary proxy statement nominating Peltz and Disney’s former Chief Financial Officer James Rasulo to the board. On January 22, Blackwells followed suit with its filing, nominating three director candidates.

Rossman noted that Disney’s situation is more complex than Salesforce, where the succession of Marc Benioff and profitability were the primary activism complaints. “At Disney, it’s a much deeper set of issues.”