According to CNBC's David Faber, Daniel Loeb's Third Point has taken a new stake in Disney, pushing it to spin off ESPN.
Shares rose by up to 2% as a result of the news.
According to TradeAlgo, Loeb's stake is worth around $1 billion.
ESPN generates significant free cash flow for Disney, according to Loeb in a letter to Disney CEO Bob Chapek.
According to Loeb, ESPN will be able to pursue business ventures that might be harder under Disney, such as sports betting. "We believe that the majority of agreements between the two companies can be reproduced through contracts, similar to how eBay spun PayPal while still using the product to process payments."
Disney makes more money from cable subscribers than any other company thanks to ESPN.
Both ESPN and ESPN2, owned by Disney, charge around $10 per month.
The majority of cable packages from providers include ESPN. Disney has moved more exclusive live games to ESPN+ over the past year, making the streaming service a stronger product.
Disney announced last month that ESPN+ prices will increase from $6.99 to $9.99 per month starting Aug. 23.
Loeb urged the entertainment company to integrate streamer Hulu directly into the Disney+ direct-to-consumer platform, as this would be beneficial.
In two years, Comcast has agreed to sell its 33% stake in Hulu to Disney.
Loeb said Disney should try to acquire Comcast's minority stake before the 2024 deadline.
Loeb said in a letter that it would be prudent for Disney to pay a modest premium to accelerate the integration. "We hope to reach a deal before Comcast is contractually obligated in 18 months, as we know this is a priority for you." In a statement, Disney responded to Loeb by saying the company has experienced continuous growth across businesses.
"All our investors' views are welcome," said Disney. "The Walt Disney Company continues to produce excellent financial results due to our top-notch storytelling and one-of-a-kind content creation and distribution system."
Disney had a great quarter with its streaming subscriber growth exceeding estimates. The company's increased spending at domestic theme parks resulted in better-than-expected results on both the top and bottom line.
Loeb is an activist investor who has a history of investing in media giants. For the past two years, he has held a stake in Disney, urging them to increase their streaming services.
Disney's shares have decreased by 20% this year.
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