walt disney
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1
Group #8:
Diyar
Saltanat
Meruyert
Dina
2
Case Background
1984. Greenmail – Hostile takeover attempt by Steinberg
Takeover is unacceptable “Poison Pill” taken by Disney: Arvida Corp. Tender for Disney Stock: $67.50 with
Gibson, $72.50 without it Two options for Disney:
Fight against takeover in court Repurchase the stock
3
Profitability Indicators
Steady decline in profitability
0%
10%
20%
30%
1979 1980 1981 1982 1983
Gross Profit Margin
Operating ProfitMargin
Net Profit Margin
ROE
4
Liquidity Assessment
Liquidity declines at compound rate of 85.45%!
Current Ratio
4.04
3.48
2.52
1.11
0.14-
1.50
3.00
4.50
1979 1980 1981 1982 1983
5
Solvency - Leverage
Increasing reliance on debt financing
Current Ratio
20% 20%
28%
39% 41%
0%
25%
50%
1979 1980 1981 1982 1983
Total Debt/Total Assets
6
Analysis by Segments
Operating Profit, mln$
129 134
197
3520
50 48 57
-34-50
0
50
100
150
200
1981 1982 1983
Entertainment&recreation Motion pictures Consumer products
7
What Happens to EPS?
-
1.00
2.00
3.00
4.00
5.00
1965 1967 1969 1971 1973 1975 1977 1979 1981 1983
EPS components, $
Paid Out as Dividends
Reinvested in the Company
8
Stock Price Determination
©2009 Google. http://www.google.com/finance?q=NYSE%3ADIS
The Stock Price HistoryApr.1980 - Feb.2009
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First option: purchase first
Try to inflate the price of shares by buying them back on the market Blended tender price => Market price goes up Blended price should be substantially
higher than the bid price (of $67.50 or $72.50)
• Time value of money• Market inherent risks
Not realizable in our case because of the amounts involved
10
Option two: repurchase from Steinberg
The regulations set the repurchase price ceiling as average price for 30 days before the greenmail.
(S.1323 amending section 14d of the Securities Exchange Act of 1934)
•We can assume the average price for last month from the Exhibit 14: $62
•That’s definitely not enough to attract Steinberg•We need to give some premium above the price he paid
11
Determination of Repurchase price The dividend growth model provides no meaningful
numbers, have to use another approach The M&A theory suggests to pay a premium during
takeovers to buyback the shares that should be sufficient to Cover all transaction costs of the raider Provide him with his expected rate of return
In a real life circumstances these is determined during the negotiations. For now, we can assume these numbers to be $0.50 per share of transaction costs, and a 2-3% rate of return on this transaction (not annual).
The repurchase price would be $69.35-$70.03 with Gibson and $74.45-$75.18 without it.
12
Who’s Fault: Ron Miller?
Is a former professional American football player, the son-in-law of Walt Disney, and a former president & CEO of The Walt Disney Company
13
GUILTY or NOT GUILTY?
Founded future success:
Create Touchstone label
Establishment of The Disney Channel
Computer animation attempts
Criticized leadership:• not focused on the operations of each business division• concentrated on the expansion of activities of real estate development • last thing they think of is their own shareholders
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Ethics of Greenmail
Disadvantages Discriminatory Payment Triumph of Certain Agents’ self-interest Transfer Effect “We are weak”
Advantages The stress situation
that may lead to higher economic efficiency
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Recommendations
Keep focus on Strategic Business Units Drop the Real Estate segment Use available proceeds for development of
Film entertainment and Television• Attract more professional staff in this industry
Change the management of the company Change dividend policy => retain more
capital for company’s future growth Insure the future possible takeover attempts
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Thank You for Thank You for Listening!Listening!
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