Operating Results –

• Magic Kingdom was not attracting visitors at the rate initially expected.
• For the fiscal year ended September 30, 1993, EDSCA reported a loss of
FF5.337 billion (equivalent to approximately $920 million), one of the
largest losses in French corporate history.
• The development and operation of the hotels and other resort property
produced results significantly below projections.
• The cash flow realized from the sale of real estate was also well below
projections.
• The cash flow realized from the sale of real estate was also well below
projections.
• It was unclear whether EDSCA could continue as a going concern.
 Interests of the participants in the project
• Disney Considerations
• Disney significantly reduced its financial risk exposure while preserving the opportunity
to earn an attractive rate of return.
• Disney negotiated extremely favorable management, licensing, incentive, and
merchandising fees.
• EDSCA paid Disney approximately FF330 million in fiscal 1992 and approximately FF482
million in 1993.
• Without these costs, EDSCA would have made a small profit in 1992.
French Government Considerations
Any govt. regulatory body does not easily invest in any project but there are some
factors in the project, which motivated the French government.These factors are:
• Unemployment
• Tax Revenue
• Increase in Tourists
European Creditor Bank Considerations
• A consortium of about 60 banks eagerly agreed to provide the construction loans.
These loans were all nonrecourse to Disney.
• Motivated by an opportunity to earn fees and interest income and hold an equity
stake, and perhaps charmed by the Disney name, the banks were quite willing to
extend credit.
• The banks, however, had much at risk. In the event of default, the assets that
served as collateral might prove difficult to liquidate. The assets of the park
consisted of the land, exhibits, and rides, none of which could be disposed of
easily.
European Equity Investors’ Considerations
• The European equity investors contributed a substantial amount of cash in
exchange for a 51%equity interest.
• Of the total equity of FF6,570,675,000 as of September 30, 1989, Disney
contributed approximately FF833,000,000, or approximately 12.67 % of the
capital, for 49%of the equity.
• The European investors invested approximately FF5,737,675,000, or
approximately 87.33%of the capital, for 51 %of the equity.
• At last they faced heavy demand for the shares of EDSCA at the initial offering
price of FF72.
• At the time of the IPO, EDSCA estimated that the occupancy of the hotels
would run between 80 percent and 85 percent, However, Disney did not
anticipate that visitors to Euro Disneyland would rather stay in Paris, just 35
miles from the theme park. the actual occupancy rates were extremely
disappointing, reportedly as low as 55 percent.
• A second problem concerned the hotel room rates: They were too high for the
market, approximately the same as the cost of a room at a top hotel in Paris.
• In an attempt to increase hotel occupancy, Disney substantially reduced room
rates. These rate reductions increased occupancy but resulted in hotel
revenue falling well below projected amounts.
• The Magic Kingdom estimates of 11 million were essentially reached in the
first year. However, in order to reach this attendance level, EDSCA had to
reduce ticket prices significantly that boosted attendance but took a big bite
out of projected revenues.
• Eventually, EDSCA’s total debt stood at nearly FF21 billion, or the equivalent of
approximately $3.75 billion.
 Subsequent Developments –
• Disney tried to turn around the Euro Disneyland Project. At one point, it was
on the verge of bankruptcy.
• On March 14, 1994, Disney, EDSCA, and a steering committee representing
EDSCA’s creditors announced a massive financial restructuring of EDSCA.
• Disney agreed to invest an additional $750 million as part of the
restructuring plan. The plan, which was accepted by 61 of EDSCA’s 63 banks,
reduced EDSCA’s debt from the equivalent of approximately $3.52 billion to
approximately $1.73 billion.
• As part of the plan, Disney agreed to forfeit for 5 years the management
fees and royalties from ticket and merchandise sales.
• The plan also called for the bank consortium to forgive 18 months’ interest
payments, defer principal repayments for three years, and provide
approximately $500 million of additional loans.
• The plan provided for a FF6 billion (equivalent to $1.07 billion) rights offering,
in which Disney would subscribe for its 49 percent share at a cost of
approximately $508 million. The creditor banks would underwrite the
remaining 51 percent of the rights offering to the other shareholders.
• The restructuring and rights offering would increase the likelihood of EDSCA’s
survival as a going concern.
• The rights offering was successful. Shareholders were allowed to subscribe for
7 new shares for every 2 shares held, creating 600 million new shares, at 10
francs per share. The offering was 80 percent subscribed by existing
shareholders (including Disney, at 49 percent).
• It appears that Disney is turning Euro Disneyland around by making changes
in its operating policies to better suit European tastes.
• Attendance at Euro Disneyland and occupancy at the Euro Disney hotels have
both grown on a year-to-year basis.
• Disney limited its risk exposure in the project while sacrificing only a relatively
small percentage of its potential returns from the project.