Happy Wednesday, and welcome back to Dry Powder.

Now that Trian’s feared activist investor Nelson Peltz has replenished his stake in Disney to the tune of 30 million shares, worth a tidy $2.8 billion, making him one of Disney’s largest individual shareholders, how will Bob Iger respond to the looming threat of a proxy fight? Today, a close look at what Nelson wants, and at the handful of Easter eggs scattered throughout Iger’s fourth-quarter report that might bring Peltz some comfort.

And yet, the Smiling Crocodile still smelled blood in the water. As Disney’s stock sunk to its lowest level in nine years, Nelson quietly replenished his stake in the company. In October, Nelson revealed that Trian now owns 30 million Disney shares—up from the 6.4 million it owned at the end of the second quarter—worth nearly $2.8 billion, making Nelson one of Disney’s largest individual shareholders, with far more skin in the game than the other directors calling the shots in the boardroom. Now, he wants two board seats—one for him and one, probably, for his son, Matthew—and might re-engage his proxy fight early next year if he doesn’t get them.

Alternately, he might try to reach a compromise with Iger that will give him some, although perhaps not all, of what he’s asking for at the moment? Will Nelson settle for a single board seat? Will the succession process be accelerated, and a successor to Iger at least identified, even if Iger is staying around until the end of 2026, per his recent contract extension? Will the Disney board increase its meager ownership stake in the company so that board members have more skin in the game?

I reached out to Nelson to have a chat about Disney’s fiscal fourth-quarter results, and his strategy. Alas, Nelson wouldn’t talk to me. But there were, I thought, a few Easter eggs in Iger’s analysis of Disney quarterly performance that may appease Nelson, if he’s of a mind to compromise, or at least to reach some sort of deal instead of initiating another proxy contest.

Iger also stroked another Trian financial erogenous zone when he talked about increasing the run rate of cost reductions at Disney to $7.5 billion, up from the $5.5 billion he had promised earlier in the year. Iger credited Disney’s structural reorganization with making the company “more efficient” and allowing it to create “a more unified, cohesive, and highly coordinated approach to marketing, pricing, and programming” in its streaming businesses, which will soon enough combine together all of Hulu and Disney+. He said that not only had Disney’s streaming businesses increased its operating performance by some $1.4 billion between fiscal year 2022 and fiscal year 2023—the business still lost $2.6 billion in 2023, including a loss of $420 million in the fourth quarter of fiscal 2023—but also that Disney’s streaming business will be profitable a year from now. We’ll see. (I note that Warner Bros. Discovery’s streaming business was profitable in the third quarter of 2023, as compared to Disney’s loss of $420 million in the same time period.)

Although Nelson has not said anything about ESPN, including whether it should be jettisoned, spun off or sold—as his fellow activist Dan Loeb had suggested a few years ago—he should take some comfort from the improving performance at the company under the leadership of Jimmy Pitaro. Things at ESPN really seemed to pick up steam in the fourth quarter of fiscal 2023, which ended in September.

In the fourth quarter, while ESPN’s domestic revenue was up only 1 percent, to $3.5 billion, its operating income was up 16 percent, to $987 million. Added to the $1.94 billion in EBITDA that ESPN made in the first nine months of 2023 (excluding, to be kind, the big losses at Star India), ESPN is a business that has generated $3 billion in EBITDA two years in a row. I guess that’s what passes for good news these days, although not so long ago ESPN was making $4.4 billion in EBITDA per year. “These results give us confidence in our belief that sports has the power to drive value for the company even in the face of challenging industry headwinds,” explained Kevin Lansberry, Disney’s interim chief financial officer. (The company also recently announced that longtime PepsiCo executive Hugh Johnston will be its new C.F.O.).

Iger did, however, make a brief mention of Pitaro’s ongoing project of turning linear ESPN into digital ESPN. This is probably of interest to Nelson, especially since Iger’s love for live sports means that Disney will likely retain ESPN for the foreseeable future. He noted that ESPN is the number one brand—of any kind—on TikTok (eDigital agency puts ESPN at number three, but whatever), adding, “We feel leaning into it is the smart thing to do because of its unique quality and how popular it is and how profitable it has been.” Iger said ESPN is “already moving quickly down” the “path” of converting ESPN into a digital offering, which he described as a “core building opportunity” for Disney, and that he hoped to engineer a “soft landing” for the transition to digital ESPN.

In other words, he meant Disney would continue to make ESPN available as part of the cable bundle while also making it available “on a true à la carte basis” in streaming form. “It is our hope that it will serve, basically, the consumer in two ways: in the traditional way and in a new way,” he said, adding that the future combined offering of Disney+, Hulu, and a streaming ESPN is “a very, very strong hand.”

As for partnerships between ESPN and others—an idea Iger first mentioned in Sun Valley over the summer—he said there was “serious interest out there,” but his comments made it seem that partners would be limited to those companies that could provide ESPN with technology that it doesn’t have (whatever that means), or companies that could provide ESPN with “more content.” He added, “We feel we have an excellent hand, by the way, and could do it without that, but why not explore strengthening our hand?” And he’s gonna need it. As for ABC, which Iger also said, in Sun Valley, that he would consider selling, he offered paeans, and pretty much nothing more. “I’d like to acknowledge the world-class journalists and producers at ABC News,” he said. “Over the past few months, many have risked their lives to keep our audiences informed during relentless news cycles and made ABC number one in network news for the 11th consecutive year.”

The good news here, if there is any on the Hulu front, is that Disney ended its fiscal year with $14.2 billion in cash, which should be more than enough to cover what they have to pay Comcast for the asset. But that would still leave Disney with $42.2 billion in net debt, or 3.2x Disney’s $12.9 billion in 2023 operating income. That’s not a scary debt multiple, but $42 billion of debt is still a lot of debt, and Nelson was originally concerned about the debt that Iger agreed to take on as part of Disney’s overpriced acquisition of Rupert Murdoch’s entertainment assets.

So what does the Smiling Crocodile want? Does he really want to spend his twilight years chasing after a C.E.O. in the boardroom, as he has so many times before? Or is this all a brilliantly media-hungry financial play—a coordinated opportunity to pressure Iger into cost-cutting steps that he already knows he has to take? Since Trian let slip to The Wall Street Journal in October that it owned 30 million Disney shares, the stock is up 6 percent. Peltz has probably already made a profit of around $200 million since he upped his stake in the company, and there is more room to climb. The stock, after all, is still down some 5 percent since Iger returned to the Disney corner office a year ago. In the end, perhaps, he’s the person that Peltz wants in the seat. And he may already have more influence from his Squawk Box Zoom ring light setup than the actual boardroom.