Eurodisney's Prince Charming?by
After a financial crunch threatened to close its doors in March, Walt Disney Co.'s struggling French theme park finally has some good news. Like Aladdin flying in on his magic carpet, Saudi Prince Al-Walid bin Talal is about to help rescue Euro Disneyland by investing up to $430 million in new equity. The deal is part of a broad restructuring that EuroDisney shareholders are to consider at a June 8 meeting. The prince also would raise $100 million to build a new conference center aimed at bringing more visitors to the troubled park.
But if the new cash helps strike a blow for American culture in the Paris suburbs, shareholders of Euro Disneyland shouldn't start the celebration yet. Many analysts doubt that even a princely bailout can turn EuroDisney into a profitable investment for outside stockholders.
SCAVENGER HUNTER. The agreement with Prince Al-Walid, announced by EuroDisney on June 1, is only a broad framework. "Lots of details remain to be worked out," says one of Disney's European bankers. The basic plan: The park's 61 lenders are obligated to buy any shares that existing shareholders don't purchase, in a $1.1 billion rights offering to be launched by fall. Al-Walid would buy out three French banks that aren't keen to own EuroDisney shares. The prince would buy shares from Banque Nationale de Paris, Banque Indosuez, and Caisse des Depots et Consignations--and possibly Disney. He would end up owning between 13% and 24% of the French venture.
The per-share price that Al-Walid and other shareholders would pay hasn't been set, but estimates range between 90 cents and $1.80 a share. That's a bargain compared with EuroDisney's recent market price of $5.33--and especially compared with its 1989 offering price of $12.80. Analysts gripe at the low price Al-Walid is getting. Still, says Nigel Reed, an analyst at Paribas Capital Markets in London, the deal "would be a positive sign that someone has confidence" in the park.
Prince Al-Walid is famous for scavenging stock in troubled companies at bargain prices. He did so at Citicorp and Saks Fifth Avenue in 1991, helping salvage both companies and profiting mightily himself. The 37-year-old nephew of Saudi King Fahd is a sort of one-man investment bank, who some Saudis think is a conduit for royal family money.
After the prince's first big deal, a 1988 bailout of a Saudi bank, the prince put $590 million into Citibank convertible preferred in the midst of the Persian Gulf war--buying a nearly 10% piece of the bank at a time when most investors were chary of its prospects. His profit if he were to sell out today: close to $900 million. In the same year, Al-Walid bought 50% of Saks Fifth Avenue after a leveraged buyout. His EuroDisney deal was worked out through Carlyle Group, a Washington investment bank run by ex-Bush Administration officials.
WHIRLWIND TOUR. By moving to firmer financial ground, EuroDisney would be able to add park attractions and possibly speed up the launch of a postponed second park nearby--an MGM studio tour. That would help solve a key problem: low occupancy at the park's five big hotels. "There aren't enough attractions to get people to spend the night," says Jeff Summers, an analyst at debt broker Klesch & Co. in London. Summers says he recently rode every EuroDisney ride in just five hours. The conference center also aims to fill hotels, especially on weekdays.
Most analysts are still skeptical about Euro Disneyland's ultimate payoff, though they say its restructuring will put it on solid footing for at least two years. Lenders are stretching out payments on the park's $3.4 billion debt, while Walt Disney--which owns 49% of the park--is giving up license fees for a time. After big losses (chart), the park should make a profit in 1995 and 1996, predicts Reed of Paribas. But trouble could return once interest payments and license fees kick in again, he says.
Disney hopes its two-year window of financial peace will bring a horde of free-spending customers. With huge hoopla on May 19, it inaugurated a station at the park's gates for France's high-speed TGV trains. By summer's end, the trains will haul Londoners through the Chunnel in just three hours to shake hands with Mickey Mouse. The park needs the boost: Attendance in its second year of mperation, ended Apr. 12, fell 10%, to 9.5 million.
Now, says Summers, Disney has a fresh chance "to show that Europe really needs an amusement park that will have cost $5 billion." Proving that will take more than rubbing a magic lamp.