Euro Disney: No Joyeux Noel Here

It's frantically renegotiating its debts -- and its troubles aren't just financial

It's Christmastime at Disneyland Resort Paris. Main Street U.S.A. is atwinkle with lights, and Mickey Mouse leads the nightly holiday parade and tree-lighting ceremony. But uh-oh, shareholders, what's that under the tree? On Nov. 17, owner Euro Disney reported a fiscal 2003 loss of $66 million, its worst performance in nearly a decade. Attendance fell to 12.4 million, some 700,000 below 2002, despite the opening of an adjacent Walt Disney Studios Park 18 months ago. The stock trades for mere centimes. Euro Disney Chief Executive André Lacroix says 2003 was an "atypical" year, marred by war, a global economic slump, and a summer heat wave in Europe. He's confident the numbers will begin to perk up by next spring.

Perhaps. But Lacroix, who took over the top job last March, has his work cut out for him. Eleven years after it first opened, the park's finances seem shakier than ever. Euro Disney admitted this fall that it couldn't meet scheduled repayments on its $2.2 billion debt -- even after Walt Disney Co. (DIS ), which owns 39%, agreed to defer millions in royalty payments. Lucky for Mickey, his creditors are feeling kindly this holiday season: On Nov. 5, they agreed to suspend repayment of the debt until Mar. 31 while they cobble together a financial rescue plan.

Euro Disney will almost certainly get more financial breathing room, possibly through a capital increase coupled with debt restructuring. Saudi billionaire Prince Al-Walid bin Talal, who owns a 16% stake and is taking part in restructuring talks, might agree to increase his holding. The French government, eager to avoid cuts in Euro Disney's 12,500-strong workforce, will likely push for more lenient debt repayment terms through its control of Euro Disney's biggest lender, Caisse des Dépôts et Consignations. "The banks have little choice but to be flexible. Otherwise the company would default," says a Paris banker familiar with the talks.


Debt relief is only part of what's needed to fix Euro Disney, though. The company's longtime strategy has been to develop a complex of attractions around the original park, so visitors would stay longer and spend more. But a big piece of that plan, the Disney Studios Park, has been a disappointment.

Visitors to the second park say it's smaller and less impressive than the Universal Studios (V ) parks in the U.S. And although it can easily be toured in half a day, visitors until recently had to pay a separate admission fee -- nearly $47 for adults and $35 for children, the same price as a daily pass for the much bigger Disneyland Paris park. Only in September did Euro Disney adopt a one-day $47 pass valid in both parks. Steep prices for shabby hotels are another turnoff. "It was really rundown," says Coni Baron, a teacher from Frankfurt who paid about $1,000 for a three-day package for her family of five, including two nights' lodging at the Davy Crockett Ranch in July.

Lacroix promises a big push to draw new visitors via stepped-up TV ads and events such as a Lion King celebration next spring. Maybe by next Christmas, Euro Disney's investors will find something besides coal in their stockings.

By Carol Matlack in Paris, with David Fairlamb in Frankfurt

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