The Walt Disney Prospectus (2008) -

The Walt Disney Prospectus (2008)

Introduction

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 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.

Indicate the type of debt that Disney offered to the public for sale and discuss the various approaches Disney incorporated to ensure successful marketability of these securities.

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 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.

Disney incorporated the following factors to ensure its success in the sale of its securities.

Risks Factors

Walt Disney 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 not encouraged by Walt Disney as the terms for redemption were unfavorable.

Sale and Distribution of securities

Walt Disney chose several respectable banks to act as their agents or underwriters. These Banks 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 done through the stock exchange; they were floated on the secondary market while the agents were also confident as they were assured that they would be 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 wanted to purchase them.

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.

The dollar amount that Walt Disney wanted to raise from the public was one billion that’s, $986,760,000 as the proceeds to the company and the brokers would earn 0.35% as part of their brokerage fee whose maturity being the year 2013 on 15^th December. As at October, 2009, Walt Disney did not have any outstanding commercial paper outstanding debts. All the commercial paper debts were redeemed before there scheduled maturity date. This was most likely because they were repurchased or surrendered due to the hard economic conditions that were prevailing in the country between the years 2008 and 2009. Www. research.stlouisfed.org/publications/iet/,.

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. This 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.

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 reduction in the earnings of Walt Disney operations in the year 2009 was mainly due to 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. The 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. 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.

Reference

Drucker, F. (1999) Management Challenges of the 21st Century. New York: Harper Business.

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