Dump the Parks to increase Stock Value!

[tikitone 74]

I don't know where to post this, but it's Park related so here goes.

I work in the travel industry and like many get daily e-news about my industry sent to my cpu. I pasted this blurb from an item in an e-mail I got today:

IS BOB IGER READY FOR HIS CLOSE-UP? Walt Disney Co.'s new CEO,
Robert Iger, is getting a lot of advice since being tapped to succeed
Michael Eisner in September. This week, Fortune weighs in with what it
believes Iger needs to do to fix Disney. One question facing Iger,
says Fortune, is whether Disney should shed its theme parks to boost its
stock price. (Page 76, Fortune, 4/4)

Now this is Fourtune's take on it! But what the hell? So much for my old Disney College of Knowledge training.

[dramaqueen]

I seriously doubt this will happen. Seriously Seriously Seriously.

Look at all the money they have dumped in the Parks recently. Hong Kong isn't even finished yet. What company would even be able to buy the division!

It will never happen- the shareholders will revolt so fast it will make what happened to Eisner will look like, well, a day at Disneyland.

I am getting stock for my birthday, I will not let it happen.

[ni_teach]

One question facing Iger,
says Fortune, is whether Disney should shed its theme parks to boost its
stock price.

If this happens I'll meet you all out front of the burbank office with some tar and feathers.

[ah schucks]

Correct me if I am wrong but I was under the impression the park were cash-cows for the Disney company? Next to the recent success of ABC and continuing smashing success of ESPN, I thought the parks were one of the largest money makers.

Besides how does that work? Does Disneyland have to aquire the rights to Disney movies for new rides and characters? Wow thats a smart move *jams his sarcastic button.

[robotpirates]

...No. That won't happen, ever.

Question though: What's Disney's biggest money maker? Is it the parks?? Or Pixar movies? Serious question...

[tikitone 74]

Amen! Thanks for quelling my panic a bit. It seems to me that Fortune is doing the proper legwork. Isn't it TV and Film that seem to be dragging?

Dump some of that stuff and you have a winner.

[dramaqueen]

Too much of the Disney company is tied up in the theme park division. I think whoever wrote that article (nothing against you at all tikitone- thanks for the post!) doesn't know anything about the company or how it works is my guess. I do not think it would profit the company at all to "dump the theme parks" - in fact, I am sure the stock would go down, and fast. I am curious to see what this article will do to stock prices as it is.

Disney is the corporation that invented "synergy" It is literally impossible to separate the divisions like that- they are all linked together.

[cellarhound]

IS BOB IGER READY FOR HIS CLOSE-UP? Walt Disney Co.'s new CEO,
Robert Iger, is getting a lot of advice since being tapped to succeed
Michael Eisner in September. This week, Fortune weighs in with what it
believes Iger needs to do to fix Disney. One question facing Iger,
says Fortune, is whether Disney should shed its theme parks to boost its
stock price. (Page 76, Fortune, 4/4)

They gotta be kidding me... The parks are a Disney cash cow along with ESPN... If they got rid of the parks you would have a lynch mob going after Iger...

I think the discussion is really aimed toward the idea of wether Iger is going to make Disney a content distributor or a content provider. Right now like Viacom, the market wants Disney to sit on one side of the content fense or the other...

Actually it should be the other way around... Unless of course they mean they should shed some of the minor movie studios and some of the cable networks... First on my list is ABC family... It conflicts with the Disney Channel format... Unless you make it Disney Family, and revert the Disney Channel to Classic Movies/TV which would be low budget high revenue...

Yes, this belongs more in Business section not the park section...

[Giant Panda]

Any Fortune subscribers out there that can shed some light on how shedding the parks would supposedly increase the stock price? I can't believe the parks are not showing a profit .....

[fkurucz]

IS BOB IGER READY FOR HIS CLOSE-UP? Walt Disney Co.'s new CEO,
Robert Iger, is getting a lot of advice since being tapped to succeed
Michael Eisner in September. This week, Fortune weighs in with what it
believes Iger needs to do to fix Disney. One question facing Iger,
says Fortune, is whether Disney should shed its theme parks to boost its
stock price. (Page 76, Fortune, 4/4)

The real question is not if the parks are cash cows, but rather if it is believed that they can grow (revenue wise). Wall St. loves growth. Which is why it is not unusual for a company to dump a slow growing cash cow to focus on its other "fast growth" businesses.

I think that it could be very positive if say the Oriental Land Company bought out the parks. Under their watch the parks could return to the former glory.

[cellarhound]

I think that it could be very positive if say the Oriental Land Company bought out the parks. Under their watch the parks could return to the former glory.

Correct me if I am wrong but not all the parks are owned by DisCo... And they are traded separately...

And that the Hong Kong DL is owned by the OLC...

[dramaqueen]

I know for sure the TDL is owned by OLC and that they pay licensing rights to disney.
I don't know about HKDL.

I agree that OLC does a fabulous job with HKDL and this is they way it would have to work if another company were to buy off the theme parks.

But what company would want to do this? Along with the enormous capital that would be needed just to buy the park, on top of it to have to pay those continual licensing rights?

I can't see this being a good deal for anyone. Who determines what the theme parks would be worth?

[ah schucks]

The real question is not if the parks are cash cows, but rather if it is believed that they can grow (revenue wise). Wall St. loves growth. Which is why it is not unusual for a company to dump a slow growing cash cow to focus on its other "fast growth" businesses.

I think that it could be very positive if say the Oriental Land Company bought out the parks. Under their watch the parks could return to the former glory.

Disney corp has never really obeyed the laws and observations of the standard Wall Street deal and it would surprise me if Iger ditched the parks. It could prove to be a PR nightmare damaging there entertainment products.

[dshimel]

Based on the FY04 Annual Report:
Parks and Resorts generates $7.75 billion in revenue, or 25% of the company's total revenue.

Subtract operating costs, and parks and resorts had $1.123 billion in operating income, or 25% of the company's operating income.

So far so good.....

The problem is that Parks and Resorts generated $805 million in depreciation. That is, money that was spent on capital improvement in prior years amd must be charged against profit this year. Operating Income - Depreciation (and taxes) is net profit realized by the stock holders.....

$1,123,000,000(Operating Income) - $805(Depreciation) = $318 million that the parks added to the bottom line. $7,750 million revenue to net $318 million profit. 4.1% profit/revenue.

It looks bad.... (** Actually, it is worse than that when corporate expenses, interest and taxes are subtracted from segment profits....)

Compare this to Media Networks:
$11,778 million revenue

$2,169 million operating income
-$172 depreciation
= $1,997 profit

17% profit/revenue



**actually it is worse than the above for parks and resorts..... From these "segment proft" numbers, there is another $428 million in Corporate expenses, $617 million in interest on debt, and $64 million in 1-time restructuring charge.

It could easily be argued that parks and resorts actually lost money last fiscal year.

AND, those $805 million in depreciation charges aren't likely to fall anytime soon since the company spent $719 million domestic and $289 million internation in capital improvement money on parks and resorts.... Adding $203 million more to the balance sheet than was written off by this year's $805 million charge.


IF the company could sell the parks, write off the assets (removing the need to charge $805 million a year in depreciation), reduce the corporate expenses, and use whatever cash is received in the deal to pay down debt to reduce interest, and if this reduces taxes..... Ths company could indeed be more proiftable without the parks than they are with them.

AND, if they're able to collect a merchandising fee from the sale of Disney related merchandise at the parks after the company is sold..... Cha-ching!

They'd CERTAINLY do much better at management efficinecy (ability to turn revenue into profit).


Now, do I want this to happen?????? HECK NO!!!!!

Would it actually increase the short-term value of the company? Unfortunatly, it is VERY likely it would!

[dshimel]

Tokyo Disney Resort is owned by OLC.

Hong Kong DL is owned by DisCo.

Dis Resort Paris used to be a separate operating company, and DisCo "made money" off it whether the sub-company made money or not... That has changed and Paris has been rolled into the DisCo consolidated report.. DLP profit and loss now directly hit DisCo's bottom line.

[Yendorb]

It might be the best thing for the parks....

Disney wouldn't sell the parks outright, but would spin them off into a seperate corporation with thier own stock. You could own stock in Disneyland, and not in the Walt Disney company in general. Disneyland could issue stock to raise capitol for long overdue improvements, and the parks would be run by an executive team whose only function is to make the parks better/more profitable, not an executive team that is focused on so many different Business units and media opportunities.

[sediment]

The company would then lose synergy opportunities if it were to split off the parks. "NewParkCo" would have to pay royalty fees on every attraction, old and new. That results in no new attractions being made.

Secondly, Imagineering gets to be a profit center, as it is for the work it does with OLC. Good and bad: since there's no corporate strategery department approving or disapproving every single expense based on what Eisner wants (not how the numbers are, but how the numbers are made), NewParkCo can build top-notch rides and parks not unlike Tokyo DisneySeas.

Thirdly, "NewParkCo" would likely be cloning attractions like mad, as economies of scale make it irresistible. Not that much different than now, but triple it. Expect every new attraction to be put into every park.

I would like NewParkCo to be privately held, or at least majority-controlled by the proper people. However, I think the "losing synergy" thing would be very bad. What I would like to see is synergy of the "Lion King Parade" type. With separate companies, each decision like this -- make a parade or attraction out of a Disney asset -- becomes an "I want more out of this than you" negotiation. Prolonged negotiations result in missed opportunity.

[sediment]

One question facing Iger,
says Fortune, is whether Disney should shed its theme parks to boost its
stock price. (Page 76, Fortune, 4/4)

I'd rather see the TV networks spun off. That makes more sense.

[cellarhound]

It might be the best thing for the parks....

Disney wouldn't sell the parks outright, but would spin them off into a seperate corporation with thier own stock. You could own stock in Disneyland, and not in the Walt Disney company in general. Disneyland could issue stock to raise capitol for long overdue improvements, and the parks would be run by an executive team whose only function is to make the parks better/more profitable, not an executive team that is focused on so many different Business units and media opportunities.

Actually, I don't think it would it bring more attempts to cut the bottom line to bring the new company into profit...

And you will end up with a cheaper looking DL, because you do not have supporting cash flow to improve the park...

[Wotan]

I think the real question the analysts on the Street are going to ask is if the company is simply too large now to be managed as is, and it if would be worth more to the stockholders (most of which are institutions) if it was broken up into its various components (parks, movies, media, television, etc). Certainly the Go.com purchase never paid off, and there's still questions about ABC Family, the Disney Channel, et al.

Of course, if you're a theme park enthusiast, there's certainly a great deal to be concerned about. The parks require a company with large amounts of available, accessible, and affordable capital for investment and maintenance; there aren't as many behemoths out there willing to go this far out on a limb for what can be a cyclical industry vulnerable to current events.

The threat to "break up the company" has always been there. With Eisner out of the picture, it could easily rear its head once again.