Walt Disney Co (NYSE:DIS) has come to the rescue of its loss-making subsidiary Euro Disney with a 1 billion-euro ($1.3 billion) funding deal announced on Monday, which could give the U.S. group total control over Europe's biggest tourist attraction.
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The deal includes a rights issue and debt restructuring which will inject 420 million euro in cash into the Euro Disney group and eliminate 600 million euros of its debt owed to Walt Disney via an equity swap.
Euro Disney is currently 40 percent owned by Walt Disney and 10 percent by the Saudi prince AlWaleed bin Talal with the rights issue to raise 351 million euros open to all shareholders but backed by Walt Disney, which will be required to make a tender offer for the whole company.
Twenty miles east of Paris, the resort has struggled amid the economic downturn in Europe, with attendances down by 700,000 to 800,000 visitors at just over 14 million visitors in the last year. At the same time its total debt of 1.75 billion euros which is owed to Walt Disney has hampered its ability to invest in upgrades to the park.
The company said it estimates that revenue for the year just ended on Sept. 30 fell by up to 3 percent to 1.27 billion euros while earnings before interest, tax, depreciation and amortization (EBITDA) dipped to 110-120 million euros from 144 million and net losses rose to between 110-120 million euros from 78 million.
"This proposal to recapitalize the Euro Disney Group is essential to improve our financial health and enable us to continue making investments in the resort that enhance the guest experience," company president Tom Wolber said in a statement.
Under the plan, shareholders are to be offered nine new shares for every one held for 1 euro a share, raising 351 million euros. The company said the rights offer price represented a 20 percent discount to Friday's closing price, adjusted for the issuance of the new shares.
In addition, shareholders will have the option to buy some of the shares issued in the debt conversion at 1.25 euros a share to avoid diluting their stakes. The company's debt will fall to 998 million euros, taking the company's balance sheet from a negative equity position of around 200 million euros at the end of September to positive equity of 800 million.
Depending on shareholder uptake of the rights issue and debt swap, the company said there was a small chance that the listed entity could be removed from the stock market.
Shares in Euro Disney were down 13.6 percent at 2.99 euros by 1045 GMT (0645 EDT) as investors digested the mooted changes.
"The objective of this operation is to strengthen Euro Disney, not to de-list it from the stock market," Finance Director Mark Stead told Reuters.
"Everything has been done to help convince shareholders to support the operation and subscribe to the capital increase so as to accompany Walt Disney in developing the company."
Stead said that the level of Walt Disney's holding in Euro Disney after the capital increase and debt restructuring will be determined by how many other shareholders take up the share offers.
AlWaleed bin Talal has not yet decided whether to subscribe to the share capital increase.
"I spoke to the Prince this morning, he welcomed the transaction but he hasn't yet taken a stand on which way he wants to go, he'll be coming back to us in about a week's time," said Stead.
Euro Disney had a market capitalization of 137 million euros at Friday's close. After the share sale and debt restructuring, the market capitalization of Euro Disney will be roughly 980 million euros, said a company spokesman.
Euro Disney expects to complete the share sale and debt restructuring in the first half of next year.