Disney ESPN spin-off: DIS stock price on rise amid activist calls to sell sports network

Activist investor Dan Loeb indicated in a tweet that he's going to retreat from his push to get Disney to spin off ESPN. Dreams really can come true, or at least thats what activist investor Dan Loeb was hoping to achieve when he called for media and entertainment group, Walt Disney (DIS) to spin-off its sports division, ESPN.

Despite Loeb‘s pleas for ESPN to be sold, Disney’s CEO, Bob Chapek rejected his request for a spin-off and DIS stock price has rallied 8% over the last five weeks, and is up 3% over the past week.

Disney was reported to have been considering spinning off ESPN last year before scrapping the idea. Activist investor Loeb, who heads Third Point hedge fund, was gunning for a demerger of ESPN, however, after it was announced in August that he had purchased a $1bn stake within DIS, Loeb quickly retracted this and in a tweet on Sunday the Third Point CEO said he sees the “potential” of the DIS sports division.

Walt Disney (DIS) share price chart

Backtracked

Loeb initially said that ESPN would be better off sold when DIS shares started to fall earlier this year and inflation and interest rates surged. However, he has backtracked on these comments since Chapeks comments were made and the group's share price rallied.

Chapek believed that ESPN could expand into sports betting and other areas, comparing eBays (EBAY) spin-off of Paypal (PYPL), where the online purchasing site still uses PayPal to process payments.

Loeb also wanted Disney to bring streaming giant Hulu directly onto the Disney+ direct-to-consumer platform. Comcast (CMCSA), the parent company of NBC Universal had previously wanted to sell its 33% stake in Hulu to DIS, Loeb believes that it would be in Disneys best interest to acquire the remaining stake before the sale deadline.

Comcast (CMCSA) share price chart

Positive earnings

“We believe that it would even be prudent for Disney (DIS) to pay a modest premium to accelerate the integration,” Loeb said in a letter. “We know this is a priority for you and hope there is a deal to be had before Comcast is contractually obligated to do so in about 18 months.”

On 10 August DIS released its third-quarter earnings, where it beat Netflix (NFLX) with its subscriber numbers.

“But Walt Disney couldn‘t have scripted today’s market reaction any better than the reality and its performance sprinkled some fairy dust over a number of its competitors including Warner Bros (WBD), Fox Corp (FOXA), Paramount and even Netflix (NFLX),” analysts at AJ Bell wrote in a note.