WALT DISNEY PRODUCTIONS
Lesia
DisneyReview-3.pptxFINC 4300W
Disney Case
Seminar in Business Finance
Question 1
As Disney’s CEO, would you buy back the Disney shares from Saul Steinberg? If so, why and at what price? If not, why not?
Selected Values and Bids for Disney Stock
$84.38 Stock price in April 1983
$64.00‑$99.00 C. J. Lawrence estimate
$75.00 Goldman, Sachs estimate
$72.50 Steinberg’s bid if Gibson not acquired
$67.50 Steinberg’s bid if Gibson acquired
$63.25 Steinberg’s apparent cost basis
$54.25 Stock price on June 11, 1984
$47.50 Stock price on November 10, 1983
$40.58 Book value/share on December 31, 1983
Question 1
Dismiss book value per share and the April 1983 stock price on the grounds that they reflect past performance or outdated investor expectations
Steinberg’s bid prices may be driven more by bargaining strategy than by intrinsic values,
The acquisition of Gibson Greetings is to Steinberg a value‑destroying investment. Steinberg’s cost basis ($63.25/share) is a useful reference point because it reveals the foundation on which he believed he could still make a profit.
C. J. Lawrence ($64.00‑$99.00/share) and Goldman, Sachs ($75.00/share) support that Steinberg did not overpay for his shares and that the shares might be worth considerably more than he paid.
Question 2
What is the meaning of these different valuations presented in the case? Why not just ask an accountant to tell us what Disney is worth? How, in an efficient stock market, can there be a valuation discrepancy this big?
Calculation of Disney’s Adjusted Book Value per Share
Book value of equity as reported September 30, 1983 $1,400,528,000
Disneyland 120,000,000
Film library 275,000,000
Raw land 500,000,000
Adjusted book value $2,295,528,000
Number of common shares 34,509,171
Adjusted book value per share $66.52
Book value per share = $1,400,528,000/34,509,171 = 4.58
Adjusted book value per share is at the lower range of presented values
Disney Stock price pre takeover actions = $52.62, lower than Adjusted book value
Question 3
Ron Miller, the CEO, said, “We have created unique value along with competitive and strategic advantage.” What are the unique value and advantage to which he refers? Please be as specific as possible for each business segment.
Business Segments and Strategy
Filmed Theme Consumer Real
Entertainment Parks Products Estate
Entry Animation, 1928 Disneyland, 1954 Gibson 28,000 acres
Wonderful World (TV), 1961‑81 Disney World, 1972 Greetings, 1984 in Orlando, 1968
Disney Channel, 1979 EPCOT, 1982 Arvida, 1984
Touchstone Films, 1979 Tokyo, 1983
Industry Changing demographics 25 parks Highly competitive
Situation Consolidation in films Saturated demand Easy entry
Heavy competition in cable Low growth
Large risks
Disney Dominant family brand Leading franchise Ancillary Huge position in
Position Trademarked animated Well‑positioned in Florida
characters Florida and Determines land
Valuable film library Southern California values around
Orlando
Strategy Shift to target Spend aggressively Protect trademarks Develop slowly
more mature audiences to maintain/improve Exploit characters and selectively
Exploit film library existing parks
Red flags Erosion of creative talent Flat growth, Huge capital
Recent big film losses even with EPCOT requirements
Long time to pay
off
Question 4 :Is Disney excellent in financial terms? How do you define excellence? Why is operational success not automatically accompanied by financial success?
Profitability and Value of DJIA Companies, Winter 1984
ALD (Allied Corp.)
Walt Disney Productions Annual Return on Equity Compared to Cost of Equity
Walt Disney Productions Annual Return on Equity Compared to Cost of Equity
Question 5
Should Ron Miller pay greenmail? What are the ethical considerations to paying greenmail?
Greenmail is the payment of a premium share price by a takeover target to a hostile buyer for the buyer’s accumulated shares in the target
Greenmail ethical?
Costs vs. Benefits
Alternatives
What happened?
June 12, 1984, Disney’s chief executive officer announced an agreement to buy Steinberg’s 4.2 million shares for $325.3 million, or $77.45 per share
Disney shares closed at $49.00, down $5.25, or 9.7 percent, from the previous close
Shareholder lawsuits were filed, no success
July 17, Irwin Jacobs, charging that Disney was overpaying for Gibson Greetings, announced a hostile tender offer
Disney canceled its planned acquisition of Gibson Greetings, but Jacobs continued with his tender offer
Bass group (major investor in Arvida) purchased 1.52 million shares at $60.00 each ($3.25 more than the stock was trading for at the time) from Michael Milken and Ivan Boesky
What happened?
Board of directors fired Ronald Miller as chief executive officer on September 7, 1984. Two directors who helped in the takeover defense quit in January 1985. The chief financial officer, the head of the pay-TV division, and other managers left within a year of Miller’s departure
Focus of the firm’s strategy shifted from real property back to creative capital, hiring of the new chief executive officer, Michael Eisner, from Paramount
“It’s going to take a creative person to run this company. Look at the history of American companies. They have always gotten into trouble when the creative people are replaced by the managers. Walt Disney Productions can’t allow that to happen to it.”
New Strategy
The main elements of Eisner’s new strategy for Disney emerged rather quickly:
Rapidly expand film production (both live-action and animation)
Return to television
Exploit the extensive library of films, TV shows, and cartoons through theater rereleases, videocassette sales, and TV syndications
Expand the theme parks
Expand the consumer-products business, especially through dedicated retailing
Shed the Arvida Land Company
Finance innovatively and aggressively
