Disney Analyst Says Staggs' Exit Leaves "Unusual Blemish," Uncertainty as Stock Opens Lower

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Walt Disney chairman and CEO Bob Iger

"This unexpected executive shuffle likely creates stress lines in the image of cool stability that has been the public veneer of Disney under current CEO Bob Iger," says one Wall Street observer.

Shares of the Walt Disney Co. opened slightly lower Tuesday, a day after the entertainment giant said its No. 2 executive Tom Staggs would step down.

The news leaves a big question mark over the company's CEO succession as Staggs had been elevated to the role of COO last year in a move that made him the heir apparent to chairman and CEO Bob Iger, whose contract runs through 2018. But sources said the board had decided to broaden its CEO search before making a final decision, triggering Staggs to propose his resignation.

As of 9:40 a.m. ET, Disney's stock was down 1.7 percent at $97.

In overnight and Tuesday morning reports, Wall Street observers chimed in on the news and its implications, with analysts highlighting the "enormity" of the board decision and saying the COO's departure could cause "stress lines in the image of cool stability" and demonstrates how competitive the Disney CEO succession process is.

"It leaves Disney with an unusual blemish as well as uncertainty over eventual succession," Macquarie Securities analyst Tim Nollen said about Staggs' departure. "Iger has done such a commendable job in his 10 years at Disney that he will be a very hard act to follow. Iger has already delayed his retirement once. Another extension could be possible now, but two years is still plenty of time to conduct the search."

Others echoed those sentiments.

"We, like everyone else, were surprised to see that Thomas O. Staggs is departing May 6 after looking like the heir apparent for CEO for the past year," wrote FBR analyst Barton Crockett. "This unexpected executive shuffle likely creates stress lines in the image of cool stability that has been the public veneer of Disney under current CEO Bob Iger. Clearly, that is a little concerning."

But he added: "Still, what matters is the end result. And Disney and Iger have two years left to figure this out and get Disney a new leader who can carry on in the successful track (particularly in movies) laid down by Iger."

Sanford C. Bernstein analyst Todd Juenger summarized "our understanding of what transpired" in his report.

"The board wanted to broaden their search of potential candidates to replace Mr. Iger as CEO when his contract expires in 2018. (Mr. Iger's contract has already been extended once, from 2016 to 2018). The board was not in a position to provide reassurance to Mr. Staggs that he would get the job. Hence, Mr. Staggs decided it was time to move on. We have no reason to believe there was any specific project failure or decision(s) that triggered this decision."

Juenger also echoed surprised peers, writing: "Having formerly served ably as CFO, Mr. Staggs was well-liked by investors, and every indication is that he was well-liked within the Disney rank-and-file as well. Which on one hand shows the enormity of this decision for the board. The path of least resistance was clearly to ascend Mr. Staggs to CEO upon Mr. Iger's retirement. No one would have complained or accused the board of not serving the interests of shareholders."

Juenger summarized Disney's dilemma this way: "Mr. Iger is universally acknowledged as having provided exemplary leadership. How do you follow an act like that? Who could possibly live up?"

And Crockett highlighted: "For all of its whistle while you work appearance, we think it is clear that the CEO succession process at Disney is highly competitive."

He also suggested about the CEO search process: "Outsiders seem to be the likely alternative now."

 

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