Are Disney Preparing to Buy Out Disneyland Paris Owners?
It seems it is something the Walt Disney Company have been considering for some time. Disneyland Paris, a park that after 20 years of operation is still struggling to be profitable could be entirely bought out by the Walt Disney Company and run solely by them. According to a recent Telegraph article:
Taking complete ownership of Disneyland Paris could bring a much-needed sparkle to the theme parks. But, despite being one of Europe’s most-visited tourist attractions, with a record 15.6m guests in 2011, it is not profitable and has made total net losses of €212m (£168m) over the past five years.
The park hasn’t seen a major new attraction since Tower of Terror and there are fears that no significant funding will become available for expansion unless the Walt Disney Company become more involved. “The purchase of Disneyland Paris has been on the cards for a long time and is something they want to do,” said a source close to the US entertainment giant. The article goes on to say:
Disneyland Paris made an €11.5m operating profit on €1.3bn of revenue in the year to 30 September 2011. However, it was pushed into the red by paying €75.7m of financial charges on the €1.8bn of debt which hasn’t been paid off since it was used to fund construction of the complex.
In 2011, for the second year running, it missed its performance objectives under its debt agreements and was forced to defer payment of €20.2m in interest owed to its biggest lender, the state controlled Caisse des Dépôts et Consignations, as well as a further €25m of royalty fees to Disney.
It is thought the Paris operation’s debt could pose the “biggest obstacle” for a potential buy-out. But clearing it would unlock profits and allow Disney to be paid royalties. Disney would take the reward, which would give it increased incentive to invest in the theme parks.
In a bid to banish the red ink, its chief executive, Philippe Gas, announced in October 2010 that he had set a target of paying back 25pc of its debt by 2013. Meeting this target required repayment of at least €475m, but at its AGM in February it was revealed that only €409.6m is scheduled to be repaid, with the annual repayment dropping to just €37.4m in 2014.
The Walt Disney Company has the resources to make a bid. At the end of last year it had $3.2bn (£2bn) of cash in the bank and made a $5.3bn net profit on $40.9bn of revenue. Since then, its results have received a glow from the release of blockbuster movie The Avengers and profits for the three months to June 30 2012 rose 31pc to $1.83bn.
The Walt Disney company now has a market capitalisation of $88.9bn, compared with only €200.06m for Euro Disney, the quoted parent company of Disneyland Paris.
Euro Disney shares are trading at just over €5, which is less than half the €11 they opened at when the company was listed in 1989, and the source said that it may take more than the wave of a magic wand for the original investors to get all their money back from a buy-out.
What do you think? Is this a good or bad move by the Walt Disney Company? Should they be taking on this huge risk at such a time of recession?