(Bloomberg) -- Activist investor Dan Loeb acquired a stake in Walt Disney Co. and called for sweeping changes at the world’s largest entertainment company, including a spinoff of the ESPN sports network and new board members.

The suggestions were made in a letter Monday to Disney Chief Executive Officer Bob Chapek. Loeb said his Third Point investment firm has taken a “significant stake” in the company in recent weeks. The investor owned Disney shares previously but sold earlier this year, according to Bloomberg data.

“ESPN is a great business that currently generates significant free cash flow,” Loeb said in the letter. “Despite these advantages, we believe that a strong case can be made that the ESPN business should be spun off to shareholders with an appropriate debt load that will alleviate leverage at the parent company.”

Loeb’s outreach to Chapek will likely pressure the company to justify its costs and explain why ESPN should remain part of the entertainment giant. The shares rallied last week after earnings beat estimates, but they have fallen this year as investors fretted about a slowdown in streaming growth.

In an emailed statement, Disney didn’t address Loeb’s call for ESPN to be spun off or some of the other changes. The company said it welcomes the views of all investors, and pointed to the upbeat fiscal third-quarter results released last week.

Disney shares rose 2.2% to close at $124.26 in New York. They were down 22% this year through the Aug. 12 close.

ESPN Spinoff

Spinning off ESPN, Loeb said, would allow Disney to reduce its $46 billion debt load, much of it taken on with the 2019 acquisition of Fox Corp.’s entertainment assets. He also called on Disney to not reinstate the dividend it suspended in mid-2020, when the Covid-19 pandemic closed much of its business.

Sports are an integral part of Disney’s TV operation, drawing viewers to its ABC network as well as ESPN and its paid online operation ESPN+. Loeb said those relationships could be preserved through contractual arrangements and that an independent sports operation could assume some Disney debt.

Citigroup Inc. analyst Jason Bazinet said spinning off ESPN was a bad idea at a time when rival streaming services, such as those run by Amazon.com Inc. and Apple Inc., are adding sports to their offerings. Having those games allows Disney to sell ads across multiple outlets. Separating ESPN might prompt a rival streaming service to snap that business up, Bazinet wrote in research note Monday.

Michael Nathanson, of MoffettNathanson, said Disney needs the cash generated from the ESPN channels to fund its migration to streaming and that a standalone collection of sports cable networks would trade at a lower valuation than the company as a whole.

Third Point also urged Disney to integrate the Hulu video service directly into its Disney+ platform, the company’s flagship streaming operation. Such a move would save money and reignite growth in domestic streaming. Comcast Corp. holds a piece of Hulu, and Loeb suggested Disney pay the company a “modest premium” to gain full ownership even earlier than it’s contractually obligated to do so in 2024.

Board Gaps

Loeb also targeted Disney’s board, saying it has “gaps in talent and experience as a group that must be addressed.” Third Point “has identified potential board members who we believe would make essential contributions to the company’s board at this critical time.”

Disney responded by saying members have “significant expertise in branded, consumer-facing and technology businesses as well as talent-driven enterprises.” The board “has also benefited from continuous refreshment with an average tenure of four years,” Disney said.

The company’s prosperous parks division was the only major operation not targeted by Loeb. Profit in that business tripled to $2.19 billion in the latest quarter, buoyed tourists flocking to its domestic resorts.

Loeb’s overtures follow a great run for CEO Chapek and the company. The shares rose 14% last week after Disney reported better-than-expected growth in sales and earnings. Subscribers to the company’s streaming services rose, rivaling leader Netflix Inc.

The company also announced price increases for its online services designed to bolster recent growth. ESPN+ has been gaining momentum, with subscribers climbing 62% in the past 12 months, to 22.3 million, after years of anemic growth. But it’s still not making money.

Loeb wrote Chapek in October 2020 urging the executive to suspend the dividend, raise the prices of its streaming service and more fully integrate the Hulu and ESPN+ services into its package of offerings, moves the company had already been making.

The investor has also led campaigns at Sony Group Corp., urging the Japanese consumer electronics giant to separate its entertainment businesses in 2013 and its semiconductor operation in 2019.

(Updates with analysts’ comments starting in ninth paragraph.)

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