A report from the Paris Recapitalization Information Meeting

On Thursday 11 December 2014 a Shareholders Recapitalization Information Meeting was held in Paris to discuss the Recapitalization proposal that has been made between Euro Disney and The Walt Disney Company (TWDC).

This meeting was part of a number of conferences that were being held in France to help inform shareholders of the proposal and to enable them to ask questions to members of the Supervisory Board and Company Officers.

At the meeting  Virginie CALMELS, President of the Supervisory Board, Mark STEAD, Chief Financial Officer and Yoann NGUYEN, Investors Relations  were in attendance and Tom WOLBER, CEO of Euro Disney S.A.S. joined the meeting shortly after it stared.  Tom spoke in English and the participants had a simultaneous translation.

The meeting was held in French and the translation below has been supplied by Edith of APPAED, the Association des Petits Porteurs d’Actions Euro Disney.  Edith attended the meeting and has kindly given her permission for the translation of her notes to be published on our blog.

The meeting began in 19 :45  and Virginie CALMELS did not make an introductory speech because of the necessary to answer questions on the Recapitalization.

First question: What is the point of the operation for the Small Shareholders?

Virginie Calmels: First we need to  place the operation in its context. The interest is above all for the Company because its financial situation is bad and could lead to a dead end.

The planned conditions in the Financial Plan have been modified by TWDC. The last fiscal year is bad, that’s why we come to that. The expectations have not been kept on the attendance. On the horizon 2018, the expectations are not good with a lowest point estimated at 800 million euros loss in 2018.

Five solutions were considered :

  • Defer the payment of the interests, but the overdraft would have been 180 million euros.
  • Limit strictly the expenditure to the maintenance, the overdraft would have been 300 million euros and it would have lowered the Park competitiveness.
  • Modify the structure of funding and thus look at an additional debt, but its amount would have reached 14 times the EBIDTA and it would have been impossible to deal with the debt.
  • Make an increase of stockholders’ equity by convertible bond issue, but the probability to attract new investors is low.
  • Make a capital increase for 1 billion euros, but with not much chance of success.

A Shareholder: We notice that all the forecasts made for 20 years have been proven to be incorrect. Ten years ago President LACROIX gave the same speech for the capital increase in 2004, operation which did not show fruits. And today it gives 10 years to refund 1 billion, that is to say provide 100 million euros cash a year for the repayment. It is impossible. We are diluted and the price share is at the lowest. The Company is almost in situation of suspension of payments. Banks would never have accepted such a situation.

Virginie CALMELS: It would be worse if we had banks

Mark STEAD: The use of the available credit line does not mean that we are in suspension of payments.

Shareholder: But it had to be paid off on 30 September, which did not happen.

Mark STEAD: It has to be paid off on 30 September, but we can take on credit line on 1st October.

Virginie CALMELS: the expectations were not kept actually The Supervisory Board was very present and said that terms should be anticipated. We knew that there would be a problem in 2015.

A Shareholder: I have made a study on 15 European Parks. We are the only one with those problems TWDC is acting like a fireman pyromaniac. It is important to identify the Business Model‘s problem. If you have losses, the Business Model is not good, a bad economic policy has been led by the successive Presidents. Whose fault is it?

Virginie CALMELS: We don’t deny the facts. Whose fault is it?  There are several points. The cost price is higher than the prices; Discounts… Policy of discount pulled down the sales. We try to get out of the spiral. But it crumpled up with the crisis. If it had been outside this period of crisis, we would have been able to see fruits. We returned now to a controlled policy of discount to avoid a too massive loss of visitors.

A Shareholder: you only talk about financial problems, but the problem is the management. You never considered the possibility of making profits. The royalties, the management, everything is calculated on the turnover. At present, the Parent company (Euro Disney S.C.A.) is in positive result, it has no debt. Thus you have to raise your results in the affiliate.

Virginie CALMELS: If you take all the reports of the Supervisory Board, we noticed that the Company has to control the costs. Some efforts have been made, but not where we would like; in particular the expenses of staffs because we continue to increase the number the employees.

The real matter is the investment policy. TWDC wants the Company to continue to invest, in spite of its bad short-term results. It is necessary to be there for the long term. It is a rare strategic choice.

A Shareholder: The TWDC is not a friendly shareholder. They are the ones who have the most to lose. They are the one and only Shareholder to make money, to take advantage of this showcase to develop its additional business.

Virginie CALMELS: I will not judge, but there would be no Euro Disney without the TWDC. The French Government wanted it to be a listed Company. The operational management has to be considered in a tight context: there is a convention with TWDC. We can discuss with them on several options, but one’s need to look from where we start. And you need arguments to negotiate. In this case there is no other possible deal considering the situation.

A Shareholder: If tomorrow is worse than today, we only have to sell our shares. Will it be a retrait of the quotation?

Virginie CALMELS: If the Prince follows, the TWDC won’t have 95%. If he did not follow, a retrait could have taken place.

Mark STEAD: the transaction is proposed. There is no alternative. If the Shareholders decide not to follow and if the Prince goes out completely, in this case TWDC could reach 95%. There are many possible options.

Tom WOLBER: It will allow us to continue what is important for the Guest,  the quality. For two years we began again to invest and we can see the satisfaction increase. Ratatouille is a very big success and the satisfaction in the Studios increase.

We want to invest for the 25th Anniversary, We need to replace systems.  The attendance felt 5% but the amount of the amount of satisfaction increase. To invest in quality will be paying. It is a long-term job.

Shareholder: It is maddening that the average spending increases. But was it the good time to begin renovations so that there is a decline of 10% of the hotel capacity?

You always lie. It is « abominable» than the Cabinet LEDOUBLE speak about “fair” character of the offer.

Tom WOLBER: For the hotels, it is independent.  For the price of the share, every expert would come to the same conclusion. It is not a pleasant situation, but we can’t’ do anything.

Virginie CALMELS: We brought in several experts among whom Bank Rothschild, Cabinet JPR, The Supervisory Board surrounded themselves with renown firms. There is a difference between the spirit and the letter, the law and the justice.

Shareholder: It is rather a question of “ethics “.

Virginie CALMELS: They are competent. The conclusion is unbiased. The weight of TWDC did not impact the independence of those Firms.

Tom WOLBER: You cannot renovate hotels without closing them; and it is never the good timing. The renovation will allow higher prices. Closures are calculated. Everything has to be ready for the end of the crisis. It is necessary.

Virginie CALMELS: We would have preferred to have this investment plan before the crisis. The discount policy coupled with the not investment, then do the contrary but during the crisis has been the worst timing. The management is moving to average / long term. This activity (editor’s note: Amusement Parks) needs much investment.

Tom WOLBER: In 2017 for the 25th Anniversary the hotel will be renovated and have full capacity.

A Shareholder: let us return to the details of the operation. The recapitalization of 1 billion euros is away to make lose interest for the small Shareholders. It is shocking to speak of OPO.

Mark STEAD: No banks wanted to guarantee the operation. The TWDC vouch for it. It will increase their participation which will be at least of 41%. The OPO is an obligation in law.

What is unique is that TWDC announces it before. And it is important because it sets the price of the share to 3,46 €, therefore 1,25€ is equivalent to 3.46 with the augmentation of the number of shares. 1.25 € is a balanced value.

The launch has been made before the announcement of the annual results because we thought that the price of the share could fall after the publication.

In 2024, if the business goes well we will be able to pay the interests and approximately 1 billion debt will remain. Par rapport Regard to the business plan, we think we will be able to refinance this debt or with the Banks or with TWDC.

In the meantime there is no refund, so there will be more cash for the Society.

A Shareholder: You want to put the burden on our Company with 600 million from a subsidiary; but we do not have to take them.

Mark STEAD: The augmentation is only done at the level of EDA which is listed. If we do not raise the debt and make this operation at the level of EDA, the TWDC will take everything. And the value or the quoted share would have flopped to 90%.

Shareholder: the set-up is very cunning.

Mark STEAD: if we have a downgrade of the debt, in the current situation, it would mean that the share has no value. If the creditors take control, the share flops to 0.

How to value this depreciation? Is has been studied with the Statutory auditors. A listed Company is the value of the group.

Shareholder: It is necessary to remain careful on your projections.

Mark STEAD: It is based on what’s going on. The current value is lower than the book value.

A Shareholder: after the operation, what will be the impact on the reduction in the financial charge?  Was the departure of Philippe GAS made at the right time, or was it a sanction? If the French market does not star again at once, do you have a B plan?

Tom WOLBER: Philippe’s departure has nothing to do with his performances. There was the problem with the Director of Shanghai who left. Philippe has been appointed for his knowledge of the oriental market. Certainly it was not the best moment. Philippe would have liked to stay to oversee this operation.

Mark STEAD: The reduction in the financial charge will be 13 to 15 million euros. The French market represents 50% of our business. For the rest, we are looking to the markets which are in good shape: Great Britain, Spain, and tourists arrivals in Paris. We started to work with Tour Operators. Those tourists pay at full price, stay only one day and buy a lot of souvenirs. Russia, it is difficult with the events; Saudi Arabia also with the oil price.

A Shareholder: Why the recommendations of the Supervisory Board were not taken into account?  In your last speech in the General Meeting, things did not seem to be so bad? You speak about stall expenses, are you going to o reduce your remuneration?

Virginie CALMELS: Recommendations are issued. Altogether they are followed. But the crisis made that the timing was not suited. During the last General Meeting, we did not get all the information. The activity deteriorated from month to month.

Mark STEAD: We began to work as usual in January, as we do every year. We noticed the deterioration and a team began to work on it. From April we have seen a fall in the business and we adjusted the business plan and developed solutions.

Virginie CALMELS: We are paid by attendance fees. We can imagine members unpaid. But any work deserves salary. There is no possible comparison with the payroll.

A Shareholder: The Yield management allows a company to anticipate. We have never seen that:  Euro Disney, year after year subsidized visits. The policy is to ensure by the volumes. But isn’t it better to have 8 million profitable visitors?

Have you heard about the theory of the Agency? (In the listed Companies, it is necessary to smooth the balance of power between shareholders and managers). In the case of Euro Disney the main shareholder is also manager: So which is the legitimacy of the policy of TWDC? (Example: the purchase of Nokia by Microsoft).

Virginie CALMELS: In what that is going to apply in Euro Disney? Who should be a potential buyer?

Shareholder: After 10-15 years there should be finally profits but no dividends to be distributed. The money comes at first from the Shareholders and from the State; it is a despoilment.

Virginie CALMELS: I do not believe in the application of that theory of the Agency for Euro Disney. There will always be a kind of transparency.

I don’t believe that in 20 years there are big dividends only for TWDC. It will always be necessary to make Investment. It is a fact that the Business Plans were not kept. This operation will allow us more flexibility. We are not able to generate many results. Results yes but not much

A Shareholder: 100% participation does not change the image. If loads are proportional in the turnover, it is insoluble.

Mark STEAD: It is the same for all the Parks, and they are profitable.

Virginie CALMELS: France is not an easy country for the workforce.

Mark STEAD: LEGO pays 8% on the turnover; Six Flags pays 12% on the turnover.

A Shareholder: All the financial newspapers recommended not to participate in the operation but to keep shares for the Shareholders Club. There will be always the same advantages? How did the Conferences in Province go?

Tom WOLBER: every old member of the Shareholders Club will stay member. The conditions will change for new members. There will be the same rights and the same advantages.

Yoann NGUYEN: The Conferences are doing well and the participants are satisfied.

A Shareholder: And Star Tours 2?

Tom WOLBER: Next year the new Star Wars will be launched.

At 21:35 the meeting ended.

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