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,
Finance – Walt Disney Prospectus 2
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
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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
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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.
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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
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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.
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Reference
Drucker, F. (1999) Management Challenges of the 21st Century. New York: Harper Business.
