CIAM accuses Disney of forcing out Minority Shareholders.

Logo_Euro_Disney_SCA

Euro Disney S.C.A. investor hedge fund  Charity & Merger Arbitrage Fund managed by Charity Investment Asset Management (CIAM)  has written to individual members of the Disneyland Paris Supervisory Board  accusing the company of working with The Walt Disney Company to force out minority shareholders.

The Walt Disney Company  last month acquired a further 9%  stake in Euro Disney from Prince Alwaleed, the Saudi billionaire, at €2.00 a share, increasing its holding in the resort to 85.7%, and said it was offering the same price to shareholders  of the remaining shares.

Founded in 2009 by Catherine Berjal and Anne-Sophie d’Andlau, CIAM has long been critical of the scale of the royalty fees payable to The Walt Disney Company and has said that the €565 million depreciation in Euro Disney’s last accounts “would mean that the book value of the park is zero”.  The Euro Disney Group posted a record loss of €858 million last year.

CIAM  who are reported hold 1.4% of Euro Disney’s stock accuses Disney management of exploiting “a clear conflict of interest”, arguing that the write-down appears solely to facilitate the takeover bid.

Euro Disney and The Walt Disney Company have consistently dismissed the allegations as “utterly without merit”.

Advertisements

CIAM slams Walt Disney as ‘Scrooges’.

Logo_Euro_Disney_SCA

Yesterdays Telegraph published an article about the legal action being taken by French hedge fund Charity & Investment Merger Arbitrage Fund (CIAM) against Euro Disney S.C.A. and The Walt Disney Company.

It appears that Anne-Sophie D’Andlau founder of CIMA was in London last week and spoke about the legal action CIAM is  taking against The Walt Disney Company in the French criminal courts for misuse of corporate assets, publication of inaccurate accounts and misleading information.

In the civil courts, CIAM is fighting for shareholders to be reimbursed for €930m of fees overpaid by Euro Disney. The company has also taken its case against Disney’s 2015 €1.25 Recapitalisation share offer to the Supreme Court.

This year Disneyland Pairs  posted a record  loss of €858 million, which included an impairment charge for the Group’s assets of €565 million.

We have been covering this story for quite some time, you can read the back ground to the case here.

Activist fund slams Walt Disney ‘Scrooges’

An activist investor has declared war on Walt Disney, vowing to claw back almost €1bn in “egregious fees” levelled against its struggling French offshoot.

French asset manager CIAM has accused the Mickey Mouse creator of crippling the spin-off Disneyland Paris theme park with grossly inflated costs in an effort to increase its 77pc stake on the cheap.

“Euro Disney’s roller coasters are nothing compared to the scary ride that its shareholders have been taken on,” said CIAM founder Anne-Sophie D’Andlau in London last week.

Walt Disney imposes fees on Euro Disney for using its animated characters, but the fund says the rates are at least three times standard market practice. The fund also accused Walt Disney of deliberately concealing the eye-watering value of Euro Disney’s extensive land rights in areas surrounding Paris in order to make a low-ball buyout offer of €1.25 a share as part of a €1bn restructuring launched in 2015.
The value of Euro Disney’s 2,200 hectares has been independently valued at upwards of €1.9bn or about €2.40 a share, making the park worth at least three times the Walt Disney offer, CIAM says.

“It seems as though Walt Disney has spent a bit too much time studying its own Scrooge McDuck cartoons,” she quipped.

In the civil courts, CIAM is fighting for shareholders to be reimbursed for €930m of fees overpaid by Euro Disney. The company has also taken its case against Disney’s €1.25 a share offer to the Supreme Court.

Walt Disney has previously dismissed the action as “utterly without merit”.

Euro Disney, the company which operates the resort, has never made a profit despite attracting 15m visitors a year, making it Europe’s biggest tourist destination, Ms D’Andlau said.

Instead, shares in the company have shed 99pc of their value since the company went public in 1989.

Ms D’Andlau claims this is because Walt Disney siphoned a total of €930m (£780m) out of the company through artificially high licensing and royalty fees over the past decade.

Walt Disney imposes fees on Euro Disney for using its animated characters, but the fund says the rates are at least three times standard market practice. The fund also accused Walt Disney of deliberately concealing the eye-watering value of Euro Disney’s extensive land rights in areas surrounding Paris in order to make a low-ball buyout offer of €1.25 a share as part of a €1bn restructuring launched in 2015.

The value of Euro Disney’s 2,200 hectares has been independently valued at upwards of €1.9bn or about €2.40 a share, making the park worth at least three times the Walt Disney offer, CIAM says.

“It seems as though Walt Disney has spent a bit too much time studying its own Scrooge McDuck cartoons,” she quipped.

The activist fund has launched a three-pronged legal assault on Walt Disney, taking the parent company to the French criminal courts for misuse of corporate assets, publication of inaccurate accounts and misleading information.

In the civil courts, CIAM is fighting for shareholders to be reimbursed for €930m of fees overpaid by Euro Disney. The company has also taken its case against Disney’s €1.25 a share offer to the Supreme Court.

Walt Disney has previously dismissed the action as “utterly without merit”.

Is Disneyland Paris being managed solely in the interests of its majority shareholder?

95ad1-castleThe website The Conversaion has published a very interesting and informative article by The ConversationJulien Pillot, (Chercheur associé en sciences économiques), which goes into great depth about Disneyland Paris possibly being managed solely in the interests of its majority shareholder, The Walt Disney Company.

This article gives some background information to explain why CIMA are pressing on with their legal action against Euro Disney and The Walt Disney Company in France’s Autorité des Marchés Financiers  demanding €930 million for damages suffered by minority shareholders because of biased actions taken by the park’s management.


Disneyland Paris: too big to fail?

By Julien Pillot, Centre National de la Recherche Scientifique (CNRS)

In a recent article titled “The Social Cost of Dishonesty”, The Conversaion showed how imperfect markets – for example, where some parties have more information than others – require the intervention of impartial authorities to adjust the balance of power and maximize the public good. The social cost of dishonesty is even higher when such authorities are absent or when they’re captured by economic, corporate or electoral forces. We concluded with a number of questions that these issues raise in the worlds of journalism and finance.

In this article, the matter at hand is the ability of independent authorities to discipline a publicly traded company, Disneyland Paris, that is possibly being managed solely in the interests of its majority shareholder, The Walt Disney Company.

The agency theory, developed in the pioneering work of Michael Jensen and William Meckling, asserts that honest and efficient corporate governance, through properly designed incentives, can reduce the risk of one party’s making decisions that are contrary to the collective good in order to maximize its own interests.

Good for me, not so good for you

In financial economics, such “harvest strategies” often crystallize around obvious conflicts of interest, which can increase the risk of moral hazard or adverse selection. When corporate management fails to correct such problems, it is the responsibility of outside authorities to restore a level playing field or, if necessary, sanction any misconduct or market abuse.

In the case of Disneyland Paris, the risk of conflict of interest is obvious given that The Walt Disney Company (TWDC) is simultaneously its largest shareholder (39.8%); the holder of the park’s license, for which it collects generous royalties (€61.9 million for 2014 alone); its sole supplier, with no possible competition for new rides, decorative elements, etc; and, since the company was restructured in 2012, its sole creditor. Note that TWDC also controls 51% of the consolidated variable interest entities.

Suffice to say that from the outset, TWDC has been in full control of the choices made by its French subsidiary, allowing it to set the broad strategic objectives, make crucial decisions, set the level of royalties and even to appoint members of the executive board (which are often employed by TWDC itself). At the same time, the company is unlikely to be exonerated of structural losses of the consolidated group or avoid its legal or moral obligations.

This being the case, it’s illuminating to look at Disneyland Paris’s corporate governance. The manager (in this case, TWDC) is remunerated on the basis of a fee set at 1% of annual turnover (€12.9 million in 2014), to which are added royalties for the use of intellectual property that vary between 5% and 10% of turnover depending on the products and services in question (this constitutes nearly 57% of the park’s net losses over ten years). To this one we can add the considerable advantages that the European amusement park gives TWDC for its service activities (merchandising, video-on-demand subscriptions, film receipts, etc) as well as the boost that the park’s colossal advertising and PR expenses (nearly 10% its annual revenue) provide to its galaxy of affiliates (Disney Hachette Presse, The Disney Store, as well as TWDC France via the Disney Channel and DVD publishing).

It should be noted that the CEOs appointed by TWDC in recent years have succeeded in boosting both Disneyland Paris’s attendance (up 18.3% since 2000) and its sales (up 33.4%). But at the same time, the park has shown an annual profit just once, in 2008, and then only because of the sale of assets.

Royalties or profits?

From the economist’s point of view, this intriguing situation – in which growing receipts are accompanied by rising deficits – has only one possible explanation: rising marginal costs bear witness to diminishing returns from the goods and services sold. In other words, under Disneyland Paris’s business model, each new customer costs more than he or she brings in.

Moving from this realization to suspecting that Disneyland Paris is subsidizing its customers for the sole purpose of artificially increasing the company’s turnover, paying hefty royalties to its parent company (suspected to pass through Luxembourg in complex tax-avoidance scheme) and devaluing its stock price (down 95% since 1989) so that it can cheaply buy back shares is not a great leap. It is one that Charity & Investment Asset Management (CIAM) did not hesitate to make. This month it filed a complaint with France’s Autorité des Marchés Financiers (the equivalent of the SEC in the US) and others demanding €930 million for damages suffered by minority shareholders because of biased actions taken by the park’s management.

While it is not for us to play the judge in this case, there does seem to be a preponderance of evidence from an economist’s point of view. Who benefits from the crime, after all? The intentional increase in Disneyland Paris’s turnover has allowed TWDC to reap substantial returns. The park’s repeated financial losses and the endless fall of its share price have, in turn, paved the way for the buyout of third parties: the park’s creditors in 2012, and a substantial portion of minority stockholders in 2015 after yet another recapitalization. This now gives TWDC ownership of nearly 82% of the company’s shares. At the same time, remaining minority stockholders – for whom the payment of hypothetical dividends now seems like a dream – received a proposition from Disney for a mandatory buy-back at €1.25 per share. CIMA has challenged this calculation, which it said intentionally undervalued the company.

A good source of taxes

During this time, the French government examined its own situation with Disneyland Paris. It has no hope of tax receipts on nonexistent corporate profits and had already provided an endless series of gifts to the US company, including subsidized infrastructure, 4,800 acres of land sold at cost and loans at sub-market rates. In this situation, does it still have the ability to discipline – should such a thing happen – a company that pays millions of euros annually in local taxes and VAT, provides thousands of direct and indirect jobs, and which constitutes one of the top tourist destinations in France?

And even as this question reminds us of the debates around corporations that are so large or important that they can’t be subject to any decisions or actions that might weaken them – the famous “too big to fail” – the words of French playwright Jules Renard resonate: “It would be beautiful indeed to see an honest lawyer request the conviction of his own client.”

This article was originally published in French

CIMA Court of Appeal decision to be announced on 8 September 2015.

Logo_Euro_Disney_SCA

The Paris Court of Appeal will announce their decision on the case filed by the French hedge fund  Charity & Merger Arbitrage Fund (CIMA) against The Autorité des marchés financiers (AMF) [the French Financial Markets Authority]  on 8 September 2015.

The legal action which was filed in the Court of Appeal  on 9 April 2015 by CIMA against the decision made by the AMF to authorize the Euro Disney  cash  tender offer which is part of the recapitalization plan by The Walt Disney Company (TWDC) for the financially troubled Disneyland Paris resort.

According to CIMA the tender offer “completes an obvious situation of abuse of power in Euro Disney, which is not managed according to the common interest of its shareholders or even its own social interest. “

The AMF had previously indicated that the  cash tender offer was scheduled  to operate between the 2 April to 24 April 2015, but has been extended pending the decision of the Court of Appeal.  This extension enables Euro Disney shareholders the opportunity of selling their shares to TWDC under the offer at 1.25 euros per share until September.

At a hearing  held on Thursday 4 June 2015,  Mr. Julien Visconti representing CIMA, which owns less than 1% of Euro Disney said in a brief to the Court of Appeal and sent to AFP press agency. “that the offer is the culmination of a long process of abuse of power that allowed The Walt Disney Company to capture more than 1.5 billion of Euro Disney, or three-quarters of the two billion in cumulative losses since the beginning of the project “.

He continued “that the ‘ridiculous‘  prices offered as part of the offer (1.25 euros per share),  not take into account the fair value of Euro Disney property rights, and is barely a third of the net assets reassessed”,  according to Mr. Visconti citing a legal expert report.

Following the capital increase TWDC now own 78.90% of Euro Disney up 39.12%  from it’s original holding of 39.78% before the recapitalization started.

In April, the management of Euro Disney stated that the allegations made by the French hedge-fund CIMA were false and unfounded.

TWDC bailed out Euro Disney  in October 2014 by injecting more than a billion euros into the troubled theme park.  Crippled by debt since its opening in 1992, Euro Disney has already experienced financial restructuring in 1994 in 2004.

CIMA goes to court to stop TWDC takeover of Euro Disney

Logo_Euro_Disney_SCA

The French investment fund Charity & Investment Merger Arbitrage Fund – CIMA, which holds less than 1% of the share capital of Euro Disney, said on Monday it had filed an appeal against the decision of the French Financial Markets Authority (AMF) to authorize the takeover of the US parent unveiled in February.

While The Walt Disney Company has embarked on a complete takeover procedure of the capital of Euro Disney, French assest manger CIMA  considers that the procedure was not conducted in the common interest of the shareholders.

The Walt Disney Company announced on the 20 February that  they now owned up to 72.34% of the capital of Euro Disney S.C.A. as a result of capital increases made in three of its subsidiaries (EDL Holding Company, Euro Disney Investments, and EDL Corporation).

The next stage in the recapitalization of Euro Disney S.C.A. the mandatory tender offer (OPO) on all shares Euro Disney they do not possess  opened on April 2 and was expected to run until to 24 April 2015.  This has now been extended by the AMF until the Paris Appeal Court makes a ruling.

The Fund Charity & Merger Arbitrage Fund (CIMA) on 9 April 2015 filed an action for annulment before the Paris Appeal Court “against the AMF’s decision to declare conformity deposited on the public offer by the Euro Disney SCA Group Walt Disney Company,” according to a statement.

“This public offering completes a  situation of abuse of power in Euro Disney, which is not managed in the common interest of its shareholders or even its own corporate interests,” according to the fund.

 “All these actions appear likely to constitute the abuse of corporate assets offenses to the detriment of Euro Disney, presentation of inaccurate accounts and communication of false or misleading information. A complaint on these grounds was filed by CIMA with the national financial Parquet “, details the CIMA counsel, Mr. Julien Visconti.

The fund also says it plans in the coming weeks to launch an action in civil proceedings “for the return of hundreds of millions of euros improperly levied by the controlling shareholder in Euro Disney.”

On 17 February the shareholders of Euro Disney, meeting at the companies General Assembly approved the one billion euro recapitalize plan by nearly 95%.  Euro Disney has previously experienced financial restructuring in 1994 and 2004.

Source: La Tribune