For Phyllis Young

1

Walt Disney Prospectus

Assignment 2:

Walt Disney Prospectus

Professor Edward Strafaci

What type of debt did Disney offers to the public for sale?

The type of debt that Disney was offering was in the form of notes. A note is financial security and like a bond sells either at, above or below value. Disney was offering two types of notes, fixed rate and floating rate. In Disney case, they are selling the note at a value. They did stipulate that there will be a 0.20% commission and brokers can sell to others brokers at a 0.130% discount. The terms of the note are as follows, Purchase price is in $1,000 increments and the note will be dated September 24, 2001, the date the agreement was made with Wells Fargo. The will be good for at least 9 months. There will be more securities issued on a daily basis and Disney may at any time purchase notes at any price in the open market for the purpose of being held, resold or may be surrendered to Wells Fargo for cancellation. The notes will bear interest from the date of original issue at either a fixed rate or floating rate. Interest payments on both fixed rate and floating rate notes will be paid annually on February 1 and August 1 unless something different is specified in a pricing supplement.

What are the various approaches Disney incorporated to ensure successful marketability of these securities?

To ensure success Disney employed Clearstream and Euroclear to hold their securities and produce a way of making the transaction of securities a seamless one. They removed the need of physically moving the securities. Clearstream and Euroclear works within the domestic markets in several different countries. Euroclear was mainly in charge of the lending and borrowing procedures. Disney also employed a Same-Day Funds Settlement System. Another method Disney used to guarantee success was to deal in several currencies and open the debt up around the world. The notes were available in United States dollars, Australian dollars, Canadian dollars, euros, South African rand and Swiss francs but the notes were not just limited to these countries. Anyone could have purchase the notes by converting their domestic currency to any of those.

What is the dollar amount of debt Disney proposed to sell to the public?

Disney proposed to issue a billion dollars worth of notes to three securities brokerage firms in the denominations below:

Citigroup Global Markets Inc. $ 333,334,000

Deutsche Bank Securities Inc. 333,333,000

J.P. Morgan Securities Inc. 333,333,000

The public could purchase the notes from one of the securities brokerage firm in $1,000 dollar increments. The notes could be purchased form Banc of America Securities LLC, Barclays Capital, Bear, Stearns & Co. Inc., BMO Capital Markets Corp., BNP PARIBAS, Cabrera Capital Markets, LLC, Castle Oak Securities, L.P., Credit Suisse, Goldman, Sachs & Co., HSBC, Lehman Brothers, Loop Capital Markets, LLC, Merrill Lynch & Co., Ramirez & Co., Inc., RBC Capital Markets, RBS Greenwich Capital, Siebert Capital Markets, UBS Investment Bank, Utendahl Capital Partners, L.P. and The Williams Capital Group, L.P.

Did this amount increased or decreased from 2008 to 2010 and why do you think caused the changes?

This amount increased from 2008 to 2010 because Disney kept issuing more notes on a daily basis in addition to the other debt securities issued during that time period. I think that when the economy went into a recessionary state people weren’t visiting Disney as often and they seen their revenues decrease so they need more money to support day to day operations and continue with their plans. I was not able to access the Thompson One site so I am speculating. I was able to access the pdf file posted as an announcement during week 8 though. I’m not sure if there was any additional information provided on the site in regards to everything after the initial prospectus.

What percentage of the sales price did Disney nets after discounts and commissions? Did that amount decreased or increased from 2008 to 2010? What do you think caused this?

Disney should net between 99.675% to 99.050% after discounts and commissions. They agreed to pay a 0.20% commission to the brokers and between .125% and .750% for discounts. This amount decreased during the period from 2008 to 2010 because of the financial uncertainty Disney gave more discounts and paid a higher commission. Disney was determined to sale off the notes and fund their general corporate purposes.

What did Disney state they would use the proceeds for from the sale of securities for?

Disney stated that they would use the funds from the sale of securities for general corporate purposes, which may include reducing short-term debt, fund new investments and fund acquisitions. Disney also reserves the right to use the funds to temporally invest the money. The amount and length of time of these investments will depend on regulations and the needs and availability of funds for the subsidiaries.

Did Disney use those funds for the reasons stated in the prospectus? If not should Disney be held accountable by their investors? Why or Why not?

Disney did you the funds properly and for the reasons stated in the prospectus. The wording in the prospectus was stated in a way that Disney could do practically whatever they wanted with the money. They also worded it so they could buy back their notes and cancel them at any point in time. This was the first time I’ve read a prospectus in full and it was very tricky to understand. It seemed as if any word was repeated about three times but it was very informative. The prospectus also includes the option of having a pricing supplement for any changes in price and interest.