The Lex Newsletter: succession questions at LVMH, WWE and Disney

Dear reader,

The western world’s gerontocracy scored another set of victories this week. Three bosses, all in their seventies, made headlines with their succession planning, or lack of it. All three seem intent on remaining in positions of power for the foreseeable future.

WWE, the US company that produces professional wrestling events, is stuck in something of a headlock. Founder Vince McMahon, 77, stepped down as chief executive and chair last year following reports of secret payments to former employees. His daughter Stephanie was appointed interim chief executive. Now McMahon is back. With an 80 per cent share of voting rights, there is not much that anyone can do about it.

LVMH chief executive Bernard Arnault’s daughter Delphine can expect a longer stay in her new role as chief executive of Dior, one of the luxury company’s key brands. But Lex does not expect Arnault, 73, to go anywhere — despite the eye-catching management changes. Nor do we think nepo-baby promotion is a reason to reject the company. This should be a good year for LVMH. Luxury sales in China, depressed by the country’s former zero-Covid policy, are expected to jump.

Magical thinking

Last of the trio is Walt Disney chief executive Bob Iger, 71, who is under pressure from activist investor Nelson Peltz’s Trian. Peltz is right to ask about Disney’s plans for future leadership. Bob Chapek succeeded Iger in 2020 only for Iger to abruptly step back in and replace him last year. No future successor has been identified.

Disney is opposing Trian’s proxy contest for a seat on the board and a campaign to “restore the magic”. Iger has a good chance of winning over shareholders. But Lex thinks he would benefit from listening to what Peltz has to say.

Trian’s campaign focuses on Disney’s stock’s performance — noting that it peaked in late 2021 (as did many US tech and media stocks) and then fell to an eight-year low. It is also critical of Disney’s acquisition of 21st Century Fox assets. Big deals, as Lex often notes, can be better for the egos of executives than for company performance.

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There are legitimate questions to ask about how much Disney is spending on content for its streaming service — a sector where costs are high and competition for viewers keeps subscriptions low. Rates are rising and investors are growing more anxious about cash burn.

Cuts and ruts

Disney’s streaming rival Netflix will publish quarterly results next Thursday. As one of the first tech companies to report, it will set the tone for earnings. Across tech stocks, there has been something of a mini-rebound in share prices so far in 2023. That is mostly down to macroeconomics. In the US, inflation appears to have peaked and interest rate rise expectations have moderated.

Still, Lex expects 2023 to be a year of cost-cutting. This week, crypto exchange Coinbase announced plans to cut 950 jobs — about a fifth of its workforce. The question is what impact cuts will have on the sector’s growth. Tech is the home of big bets. See Microsoft’s investment in OpenAI. Crimping budgets does not come naturally.

Perhaps restrictions will ease as the year progresses. Recession expectations have lifted around the world, although in some cases the outlook may now be overly optimistic. Lex believes forecasts for profits across the Stoxx 600 Europe equity index are too rosy, for example.

The index is trading at a near-decade low of 12 times forward earnings. The UK, still labouring under a Brexit discount, trades at just 10 times forecast p/e. Both could fall further.

Lex sees a rather gloomy outlook. Even a better than expected bump in UK Christmas sales has not raised spirits. The medium-term outlook for profits at the largest retailers is poor.

Pharma has deals at least. See UK pharma group AstraZeneca’s $1.8bn cash acquisition of CinCor. Elsewhere, forecasts are bleak. Insurer Direct Line has axed its dividend after reporting £90mn in extra claims this winter. London-listed recruiter Robert Walters is warning that full-year profit will be lower than expected. Invoking the global macroeconomic backdrop, it points to a slowdown. As Iger, Arnault and McMahon know, job moves can be tricky.

Stuff I enjoyed this week

I mentioned this essay on design in a column I wrote this week about Tesla’s Cybertruck. It appears in US magazine n+1 and is worth reading in full. Why is it that despite advanced manufacturing capabilities, our built environment is often so ugly?

In California we have spent the week huddled indoors, deluged by atmospheric rivers. This article on the Great Flood of 1862 is being passed around as a warning about what has happened before and what may be coming in the future.

Prince Harry, a fellow California transplant, knows what I’m talking about. Though the storms haven’t got in the way of promotion for his autobiography. I loved Henry Mance’s review, particularly his wistfulness for an era in which Harry could have raised an army and gone to war with his family instead of making pointed jabs in print. That was one decisive way of dealing with dissatisfaction over succession planning.

Enjoy your weekend,

Elaine Moore
Deputy head of Lex