Finance – Walt Disney Prospectus
Introduction
Walt Disney Prospectus was introduced to assist in raising the much needed financing for its expansion strategies. The capital expenditures that Walt Disney required would cost billions of dollars to undertake. Walt Disney began its operations in the year 1920 as a studio for cartoon creations and animation. At the time it was known as The Disney Brothers Studios when Walt signed a contract to produce some comedies for Alice Comedies. In November the year 1928, the first Mickey Mouse Cartoon featured in a movie release known as the Steam Willie by the Colony Theater in the city of New York. Minnie Mouse cartoon also made the first appearance in this movie. The Walt Disney Company made a lot of achievement between the years 2012-2009. In the year 2012 the turnover reached a record high of $5.7 billion dollars which included an increase of 18% from the previous year. Its earnings per share increased by 24% in the same year i.e. the earnings per share increased to $3.13. The successes of Walt Disney Company is based on its strategy to significantly invest in capturing the imaginations of millions of its viewers by building an amazing collection of the world’s best high quality content which can only achieve unparalleled experiences. In a world of ever growing entertainment choices, people prefer to reach out to the brand that they are aware of and which they love. Walt Disney is positioning itself as a leading brand in the entertainment world where there is everything for everyone i.e. entertainment for children, sportsmen, movies, games, music, books, luxurious cruises, parks and all forms of fantasy dreams that exist only in Disneyland. www.Walt Disney.com Walt Disney derives its strength from its huge market capitalization of about $123 Billion. www.yahoo.finance The strengths of Walt Disney are based on three strong core competences. These are the existence of very strong organizational ability and culture, advanced technological innovation and outstanding continuous improvements. Walt Disney has position itself as the market leader in animation and the fantasy world. It has a very strong market position, with high market capitalization and market share with relatively high profitability (Drucker, 1999) The global market that’s very strong, the huge market available in the US and other developed nations provide a world of opportunities for Walt Disney to market its products and services and expand to other markets worldwide. The technological advances, including the motion movies, music and games on modern digital phones provide very strong incentives for Walt Disney. It has acquired several companies that are strategically located in different parts of the world. Walt Disney Controls Slightly more than 50% of the entire Entertainment industry in the US. The construction of the commuter rail in Orlando, Florida is expected to open up more opportunities at the theme parks.
- Indicate the type of debt did Disney offers to the public for sale and discuss the various approaches Disney incorporated to ensure successful marketability of these securities.
Walt Disney prospectus supplement for the sale of securities indicated that they were issued as senior debt securities that were under an indenture and ranked at par with all other senior unsecured debts but later they were registered as 4.5% Global notes that were due in 2013. To ensure there marketability, each note issued was entered in a registered book entry form or in a definitive form and represented through a global security that’s deposited with The depository Trust Company and registered in the depositary’s nominee’s name.
Risks Factors
Walt Disney made it clear that the sale of securities would be redeemed or repurchased only at the time of maturity but the investors had the option of redeeming the securities at the terms of Walt Disney’s and at time decided by the company. These earlier redemption was discouraged by Walt Disney as the terms were unfavorable.
Distribution
Walt Disney chose several reputable banks to act as their agents or underwriters. These were the Bank of the American securities LLC, Bear, Sterns & Co, Barclays Capital Inc, J.P Morgan among others. The distribution system was very effective and competently handled.
Marketing
The sale of the securities was not through the stock exchange and they floated on the secondary market while the agents were also confident as they were assured that they were indemnified against all the liabilities that may accrue to them under the Securities Act. These actions by Walt Disney ensured that its securities were available to all investors who may have been interested in them.
2. List the dollar amount of debt Disney proposed to sell to the public. Indicate whether this amount has increased or decreased from 2008 to 2010. Discuss some potential causes of this increase or decrease.
Walt Disney amount of debt in dollars was one billion with $986,760,000 being the proceeds to the company while the brokers would earn 0.35% as part of their payment and their maturity being the year 2013 on 15th December. As at October, 2009, Walt Disney did not have any outstanding commercial paper outstanding debts. The commercial paper debts were redeemed before there scheduled maturity date. This was probably because they were repurchased or surrendered because of the hard economic conditions that were prevailing in the country between the years 2008 and 2009. The US economy registered a negative 8% growth and most investors were beginning to get uneasy with their investments. Www. research.stlouisfed.org/publications/iet/, These events may have prompted most investors to opt for an early redemption fearing that the worst is yet to come.
- Determine the percentage of the sales price Disney nets after discounts and commissions. Indicate whether this amount as decreased or increased from 2008 to 2010. Discuss some potential causes of this increase or decrease.
Walt Disney amount of debt in dollars was one billion with $986,760,000 being the proceeds to the company while the brokers would earn 0.35% as part of their payment. These amounts have decreased due to the average performance of Walt Disney operations in the year 2009 and the improved performance in the year 2010. These has enabled Walt Disney to repay all its commercial paper debts.
In the year 2010, the net income attributed to Walt Disney was $3963 million which represented an increase of 19.8% from the year 2009 which recorded $3307. The net income of the year 2009 represented a decrease of 25.3% in net revenues from the previous year which had recorded a total of $4427 million in the year 2008. (Drucker, 1999)
This drop in net revenues can largely be explained by the poor economic conditions that were prevailing at the time. . The frequent energy prices and the cost of maintaining the environment pose a major threat to business operations of Walt Disney. The slowing down of the American economy contributed to the reduction of the net income. For instance in the year 2008 and parts of 2009, when the US economy recorded a negative 8% growth, www. research.stlouisfed.org/publications/iet/, the employment level during that period was at an all time low which stood at negative 4% growth while unemployment was at 10%. Most Multinational companies were severely affected by the global recession. The over reliance on the American market provided a weak link in the company’s marketing strategy.
The other factor is the change in consumer behavior which affected its Studio Entertainment segment. These was largely attributed to the shift in consumer behavior from the normal DVD sales to the more outstanding on-demand pay TV services together with other digital mediums. www.Walt Disney. Com
- Indicate what Disney stated they would use the proceeds for from the sale of securities. Discuss whether or not Disney was able to use those funds for the reasons stated in the prospectus. If not should Disney be held accountable by their investors? Why or Why not?
The proceeds of the sale of the securities as offered by the prospectus were meant to be utilized for general corporate purposes. These were a) To reduce the short term indebtness b) To fund or expand investments, extension of credits and contributions to other subsidiaries c) To fund acquisitions. The proceeds may fund other projects as applicable and suggested in the prospectus supplement be.
Most of the funds were reinvested in the business to facilitate major acquisitions and to finance major expansion activities. The larger share of the sale of the securities on the prospectus were invested in capital expenditure that entailed the construction of theme parks and the expansion of resorts, attractions, new rides and cruise ships. In the year 2010, capital expenditures were concentrated in expansion of the Hong Kong and California Disneyland, the construction of the Vacation resort in Hawaii and part payment of two new cruise Ships. Major capital expenditures that were incurred in 2010 were partly paid or initiated in the year 2009 like the California Adventure and the progressive payments for the luxurious cruise ships. The other investments were on Media networks expansion and upgrading of the broadcast and media centers. Corporate investments included investments in the information and technological improvements. The major acquisitions were the Marvel Entertainment and the Playdom Inc that totaled $2.5 billion. These acquisitions were partially subsidized by the sale of other investments in television services in Europe together with other assets belonging Walt Disney Power Rangers properties. All the proceeds from the sale of the securities were fully utilized. Walt Disney had to sell some assets to facilitate some of the capital expenditure as the funds from the sale of the securities were inadequate. Walt Disney does not have to account for the proceeds as the funds were not sufficient to facilitate all the capital expenditures activities were supposed to be undertaken.
To conclude, the underperformance of Walt Disney operations in the year 2009 was mostly because of its expansion strategies that were introduced in the year 2008 that saw the part payment of the two cruise ships and the sale of the securities to finance all its capital expenditure activities. Also its expansion to emerging markets some of which incurred some losses and still required financial subsidies to breakeven like the theme parks in China i.e. in Shanghai. Also the effects of the 2008 financial crisis saw Disney write off over hundred million dollars incurred as losses due to the Lehman Brothers investment bank bankruptcy. The economic effects of global disasters like earthquakes, floods and the threat of terrorism have slowed down Walt Disney Expansion strategies. The investors should reward the efforts of Walt Disney management for their overall achievements after the sale of the securities and the performance of the preceding years.
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Reference
Drucker, F. (1999) Management Challenges of the 21st Century. New York: Harper Business.
www. research.stlouisfed.org/publications/iet/,
www.yahoo.finance
www.Walt Disney.com
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