After two decades of putting up with lackluster financial results at its European theme-park resort, Disneyland Paris, the Walt Disney Co. is considering a possible buyout of the publicly traded French company that manages the resort, Euro Disney SCA.
Disney currently owns 40% of Euro Disney, and sources close to the Burbank, Calif., and it seems that discussions have been taking place internally about buying out the stock it doesnít currently own. Of the remaining shares, 10% is owned by Saudi Prince al-Waleed bin Talal, and the rest is held by individual and institutional investors.
If the Walt Disney Co were to acquire the entire French company, it would be the first step in a comprehensive turnaround strategy that would enable Disney to benefit far more substantially from the popular success of the park. Disneyland Paris attracts more than 15 million visitors every year, making it one of Europeís biggest tourist destinations, but the resort has been so weighed down by debt since it opened in 1992. It has posted net losses in 12 of the 20 years of the resortís existence, despite two financial restructurings.
Disney said in a statement that ďweíre encouraged by the resortís continued financial resilience and remain deeply committed to the future growth and long-term success of this invaluable asset to the Walt Disney Co.Ē But it didnít respond to several e-mail and phone requests for official comment on the buyout possibility. Based on Euro Disneyís stock price, which has long been depressed, the market value of the 23.4 million shares of the French company that Disney doesnít own is about $120 million. However, Disney would certainly have to pay a premium over the market price.
Itís not certain that Disney will decide to make a bid for the company, but the timing for such a move is favorable, since Disneyland Paris is currently on track to pay down about 500 million euros in debt over the next six years, or about one quarter of the remainder. This would put it on a more sustainable path to profitability. Thanks to managementís tight financial controls and higher spending per visitor, the resort is now finally making an operating profit and its cash flow is healthier. The resortís hotels last year were 87% filled, a level close to its historic high despite the economic downturn in Europe.
In the internal Disney discussions, a buyout would be followed by increased investment in the resort aimed at paying down the debt more quickly and increasing the number of attractions. There are currently two parks at the resort, the original Disneyland park and Walt Disney Studios, which opened in 2002. Under a recently renewed master agreement with the French state, which provided the land to Disney and built roads and rail links, Disney could build a third park on the site between now and 2030.
A buyout would come as welcome relief to long-suffering Euro Disney stockholders, especially those who acquired the stock early on when the park first opened. When the company first went public in 1989, it traded at 13.50 and hit a peak of 30 when Disneyland Paris opened in 1992. Today it is trading at just over 5.