Euro Disneyland

Case Analysis: Detailed Report

On January I 8, 1993, Euro Disneyland chairperson Robert Fitzpatrick announced he would leave that post on April 12 to begin his own consulting company. Quitting his position exactly one year after the grand opening of Euro Disneyland, Fitzpatrick's resignation removed U.S. management from the helm of the French theme park and resort. Fitzpatrick's position was taken by a Frenchman, Philippe Bourguignon, who had been Euro Disneyland's senior vice president for real estate. Bourguignon, 45 years old, faced a net loss of FFr 188 million for Euro Disneyland's fiscal year, which ended September 1992. Also, between April and September 1992, only 29 percent of the park's total visitors were French. Expectations were that closer to half of all visitors would be French. It was hoped that the promotion of Philippe Bourguignon would have a public relations benefit for Euro Disneyland-a project that has been a publicist's nightmare from the beginning. One of the low points was at a news conference prior to the park's opening when protesters pelted Michael Eisner, CEO of the Walt Disney Company, with rotten eggs. Within the first year of operation. Disney had to compromise its "squeaky clean" image and lift the alcohol ban at the park. Wine is now served at all major restaurants. Euro Disneyland, 49 percent owned by Walt Disney Company, Burbank, California, originally forecasted 1l million visitors in the first year of operation. In January 1993 it appeared attendance would be closer to l0 million. In response, management temporarily slashed prices at the park for local residents to FFr 150 ($27.27) from FFr 225 ($40.91) for adults, and to FFr 100 from FFr 150 for children in order to lure more French during the slow, wet winter months. The company also reduced prices at its restaurants and hotels, which registered occupancy rates of just 37 percent. Bourguignon also faced other problems, such as the second phase of development at Euro Disneyland, which was expected to sta.rt in September 1993. It was unclear how the company planned to finance its FFr 8-10 billion cost. The company had steadily drained its cash reserves (FFr 1.9 billion in May 1993) while piling up debt (FFr 21 billion in May 1993). Euro Disneyland admitted that it and the Walt Disney Company were "exploring potential sources of financing for Euro Disneyland." The company was also talking to banks about restructuring its debts. Despite the frustrations, Eisner was tirelessly upbeat about the project. "Instant hits are things that go away quickly, and things that grow slowly and are part of the culture are what we look for" he said. "What we created in France is the biggest private investment in a foreign country by an American company ever. And it's gonna pay off." How the Theme Parks Grew 1955 1966 197l 1982 1983 1992 Disneyland Walt Disney's death Walt Disney World in Orlando Epcot Center Tokyo Disneyland Euro Disneyland

Chronology of Euro Disneyland Deal 1984-85: 1987: 1988: Disney negotiates with Spain and France to create a European theme park. Selects France as its site. Disney signs letter of intent with the French government Selects lead commercial bank lenders for the senior portion of the project Forms a Societe en Nom Collectif (SNC) Begins planning of the equity offering of 51% Euro Disneyland as required in the letter of intent. European press and stock analysts visit Walt Disney World in Orlando Begin extensive news and television Campaign Stocks start trading from 20-25 percent premium from the issue price

1989:

Source: From Geraldine E. Willigan, The value-adding CFO: An interview with Disneys Gary Wilson. HBR January-February 1990, pp. 85-93

Financial Structuring at Euro Disneyland Eisner was so keen on Euro Disneyland that Disney kept a 49% stake in the project while the remaining 51 percent of the stock was distributed through the London, Paris and Brussels stock exchanges. Half of the stock under the offer was going to the French, 25% to the English and the rest distributed in the remaining of the European community. The initial offer price of FFr 72 was considerably higher than the pathfinders prospectus estimate because the capacity of the park had been slightly extended. Scarcity of stock was likely to push up the price which was expected to reach FFr 166 by the opening day in 1992. This would give a compound return of 21% Walt Disney maintained management control of the company. The U.S company put of $160 million of its own capital to fund this project, an investment which soared in value to $2.4 billion after the popular stock offering in Europe. French national and local authorities by comparison were provided about $800 million in low-interest loans and poured at least that much again into infrastructure. Other sources of funding were the parks 12 corporate sponsors and Disney would pay them back in kind. The autopolis ride, where the kids ride cars, features coupes emblazoned with the Hot Wheels logo. Mattel Inc., sponsor of the ride, is grateful for the boost to one of its major toy lines. The real payoff would begin once the park is opened. The Wald Disney Company would receive 10 percent of admission fees and 5 percent of food and merchandise revenue, the same arrangement as in japan. But in France it would also receive management fees, incentive fees and 49% of the profits. A Salomon Brothers analyst estimated that the park would pull in three to four million more visitors than the 11 million the company expected in the first year. Other Wall Street

analysts cautioned that both Walt Disney Company and Euro Disney shares contained all the Euro optimism that they could absorb. Europeans visit Disney World in Florida as a part of American Experience, said Patrick P. Roper marketing director of Alton Towers, a successful British theme park. He doubted they would seek the suburbs of Paris as eagerly as America and predicted attendance would trail the Disney projections. Operations We could use Enterprise Resources Planing (ERP) model to analysis Disney management. The Customer Relationship Management (CRM) for top priority of customer concern is explicitly stated in Disney's stated goal to exceed the customer expectations. The standards of service, park design and operating details, and human resource policies and practices were integrated to ensure that the Disney "play" would be continually performed in each location are the Supply Chain Management (SCM) concept and the service delivery system is the infrastructure of this model. The focal point of the service delivery system was "Disney University", the company's in-house personnel development organization with units specific to each site. It is similar to the total quality control system of Japan. Quality of service and its delivery to the customers are their primary concern and teamwork is the spirit of Disney service. In Euro Disney, the teamwork and total quality control system could not be implemented due to the cultural factor of individualism. Disney University modeled the "attitudes" required to re-create the desired level of service in the Park. To achieve the desired level of service, an extensive orientation program for both individual playing different roles and cast members and the company's quality assurance efforts is the first step to indoctrinate the Disney's service philosophy to the staff. Aiming to exceed customer expectation, happiness and customer perceptions are the "attitude" training target while employees had wide latitude to "act as a company" are the means of Disney service to achieve the target of customer concern. However, the "Attitude" training was not success in France because French is tended to enjoy entertainment which was more intellectual in nature and the cast member's attitude of entertainment concept could not be easily changed in the servicing of guest - they are aiming to please. The integration of the service delivery and the attitude of the cast members is the key factors for Disney's service delivery system. However, the attitude of the cast member of Euro Disney could not integrated with the service delivery to the visitors. The staff relationship was poor

due to the management did not fulfill the Disney's Service philosophy to cater for their employees like their guest.
Disney's service delivery system

The housing shortage was a shortfall of the Disney as there are 670,000 sq. meters office space (Exhibit 5 of the assignment) from the agricultural Marne-La-Vallee. The extra charge of adding rooms for the staff was opposite to Disney's philosophy of entertainment concepts - the fixing customer problems was given top priority. Disney's management could dissolve the accommodation problem by building sufficient apartments to the staff without charging rent. It would be very useful step to persuade the cast member in changing the attitude of grooming requirements in the guest service. Moreover, the creation of friendly climate for the communication and concerning the staff social need are the basic element of a customer relationship management e.g. social gathering function in European culture. In fact, Disney's management could understand and know more about the culture for its long term planning of the theme park design from the staff experience. It is advantage for the Enterprise Resource Planning and strengthens its customer relationship management that is acquiring new customer in Europe, enhancing the profitability of existing customers to come back Euro Disney again or previous visitors to US Disneyland, and retaining profitable customers for life. When the French government changed hands in 1986, work ground to a halt, as the negotiator appointed by the Conservative government threw out much of the ground work prepared by his Socialist predecessor. The legalistic approach taken by the Americans also bogged down talks, as it meant planning ahead for every conceivable contingency. At the same time, rightwing groups who saw the park as an invasion of "chewing-gum jobs" and U.S. pop-culture also fought hard for a greater "local cultural context." On opening day, English visitors found the French reluctant to play the game of queuing. "The French seem to think that if God had meant them to queue, He wouldnt have given them elbows," they commented. Different cultures have different definitions of personal space, and Disney guests faced problems of people getting too close or pressing around those who left too much space between themselves and the person in front. Disney placed its first ads for work bids in English, leaving smaller and medium-sized French firms feeling like foreigners in their own land. Eventually, Disney set a data bank with information on over 20.000 French and European firms looking for work and the local Chamber of Commerce developed a video text information bank with Disney that smalland medium-sized companies through France and Europe would be able to tap into. "The work will come, but many local companies have got to learn that they don't simply have the right to a chunk of work without competing," said a Chamber official. Efforts were made to ensure that sooner, rather than later, European nationals take over the day to day running of the park. Although there were only 23 U.S. expatriates amongst the employees, they controlled the show

and held most of the top jobs. Each senior manager had the task of choosing his or her European successor. Disney was also forced to bail out 40 subcontractors, who were working for the Gabot-Eremco construction contracting group which had been unable to honor all of its commitments. Some of the subcontractors said they faced bankruptcy if they were not paid for their work on Euro Disneyland. A Disney spokesperson said that the payments would be less than $20.3 million and the company had already paid Gabot-Eremco for work on the park. Gabot-Eremco and 15 other main contractors demanded $157 million in additional fees from Disney for work that they said was added to the project after the initial contracts were signed. Disney rejected the claim and sought government intervention. Disney said that under no circumstances would they pay Gabot-Eremco and accused its officers of incompetence. As Bourguignon thought about these and other problems, the previous year's losses and the prospect of losses again in the current year, with their negative impact on the company's stock price, weighed heavily on his mind. Marketing the Brand PESTEL FRAMEWORK OF FRANCE Political: France was perceived and was a stable country having a bicameral parliamentary system. The country had a very competitive & complex tax system with high marginal rates and high administrative costs. The political structure has always helped sustainable companies carry on operations in French soil. The Social Welfare policies were based upon a system of social security, family allowances, pensions and employment aid. Economical: Evaluation of Disney entry decision in Europe In examining the entry decision in Europe, we may use the Exhibit 1 as laid out in the Global Marketing Management Exhibit 9.1 to illustrate the steps how Disney decide his market plan and development in the global market. Market opportunity The market opportunity aboard for Disney land is no doubt a choice between the countries for its Complex extension. The Disney home market became mature since the Theme Park was first launched in 1955, it is a right decision to develop its market overseas. Disney movie is a symbol of American culture and it is accepted worldwide with its myths and fantasy idea. Peter Pan.

Snow White and Cinderella are well known Cartoon characters to the children without country borderline. The potential of Europe market in terms of population size, per capita spending and leisure are similar with United States. The Disney company's optimistic of European market was the access to the site by the European population and which exceeded that of the United States by 150 million in roughly one-half of the land mass. Home market. The preliminary screening of the potential target country market by ADL Research for the population segmentation initial the right target market for Disney positioning strategy. The mode of entry is crucial for Disney Land in the long-term investment in the host country. The joint venture with the local government and the political stability grantee the return and the recoverability of the revenue. Preliminary screening - Target country market The STEP analysis of Europe and Japan may be a good insight of Euro Disney and the positioning strategy of Europe market. STEP analysis of Japan Disney strengthen Disney's Europe market decision: Appetite for American styled popular entertainment - Appeal for Disney's brand of entertainment even there is difference between the Disney approach and the Japanese way of life. The fact that popular of Disney approach in Japan persuade Disney management to launch Euro Disney where the cultural difference is apparent. Per capita spending is high in Japan as there was a trend in Japan towards leisure. In Europe, the leisure is a lifestyle and it is unique in the European vacation practice. Evaluation of Disney entry decision in Europe Political stability of Japan and Europe is important for Disney as the Theme Park would be a long-term project with substantial investment. The risk of exchange impact would be higher in a unstable country when the mode of entry is joint venture with local investor and government. ECU a single Europe market in 1992 was a guarantee not only safeguarded the political risk but it also facilitated the free access within the Europe under the ECU agreement. Decision criteria for mode of entry In evaluating the decision to build the theme Park in Euro, the mode of entry is also important for Disney. The decision criteria will influence the choice of entry mode in terms of External criteria of market size and Growth, Risk, Government regulation, competitive environment and local infrastructure ;

Internal criteria of company objective, need for control, internal resources, assets and capability and flexibility. The population of Europe is huge and greater than in United States. The vacation practice is one the external criteria for building theme park where the visitors could easy access around the Complex. French Government built a new railway for Disney land in transporting the tourists to the Park. Since the control of delivery service system is the key factor of Disney success in Europe, therefore the probability of the system successfully transferred is the primary concern. It is found that the failure of Euro Disney is the reason that the quality service could not be effectively delivered to the visitor by the cast members. The joint venture with European investor and agreement with French government has proven a good investment decision for the long term project as the participation of government and European guarantee the recoverability of the revenue. However, it is inflexible for the exit of Disney when the visitors is fall short of the forecast number. Segmentation, targeting market and positioning The socioeconomic factors are the bases for Disney in determine the market segmentation. The vacation practice of European is five week for every year and Paris are the popular destination of the tourists as 50 million visitors came to Pairs and spent $21 billion per annum. Consumption patterns for many goods and service is largely driven by the consumer wealth or the country's level of economic development in general. The effective market segmentation has to be sizable and large enough to be worth going. Europe is an alternative market of United States as many products coming from United States are part of the international marketing strategy of US company. Market segmentation According to the ADL Research, European enjoyed their vacation and the period of vacation per annum in Europe was five weeks. It was greater than the three weeks vacation in United States. European selected Paris as vacation destination and spending an estimated $21 billion from the 50 million tourists therefore they were used as the basis of the market segmentation and the distance from the site in Paris were subdivided into different group in assessing the individual target market. Target Market and Disney's Positioning strategy

As the Research Disney conducted on European travel to the United States showed that the three things tourists were most interested in seeing were New York, Disneyland, and the Western United States, the Complex that Disney built in France was the most "Western American" of all of Disney's Parks. However, the initial idea of Disney is not based on the "American Consciousness". Rather, the design was to accommodate the preferences of European guests and certain French cultural requirements. The target market of Disney in Europe was past visitors of United States Disneyland from Europe and the design of theme park was focus into attracting these visitors to come back again and "experience" the Disney again. Market research was used to set the tone of the resort. The service adaptation of Disney Park design for cultural requirement, involving park design, grooming standards for employees, and eating habits, were expressed by vocal French intellectuals, French government officials and local press. Subsequent to concerns raised by the French government, Disney assured that French would be the first language of the park while most signs would be bilingual as would be the park's employees. Development and organization of the park - American hardware design and European preference combination The implication of this target market has reflected in the design of the park where Disney attempted to imbue the park with a European flavor. The combination of American design with European preference destroyed the American Spirit of the theme Park. In Fantasyland, it was stressed that Disney characters had their roots in European mythology. The Peter Pan attraction featured Edwardian-style architecture, snow White had her home in a Bavarian Village. Adventure land would invoke the imagination of famous European adventure tales such as Sinbad the Sailor, Arabian Nights and the Thief of Baghdad. Disney concerned the toleration of French visitors of long waiting lines and planned films and other entertainment diversions for guests in line for a ride. The other issue was the eating habits between American and European. In anticipation of concerns about food, Euro Disney featured foods from around the world at its many theme restaurants and snack bars. This was in contrast to the strictly American flavor of Tokyo Disneyland. The human size of the Park is the core competence of Disney and the organization of the Park is built with the guest service and quality of the service stemmed from the service system delivered to the customer by cast members. The biggest challenge for Disney was preparing operationally to provide Disney's standard of customer service - transferable of service system to Europe. The indoctrination of all employees in the Disney service philosophy is the critical

factor for Disney to deliver the service system effectively to the visitor i.e. guest service and quality of service. The comment from visitors that the park did not meet the U.S. Standard, suffering from poor service and operational glitches had proved the European preference and service adaptation is a wrong decision.

Sources: http://data.worldbank.org/

Debt Restructuring Plan On July 2 2004, Walt Disney, confronted the reality that the Euro Disney theme parks east of Paris have not earned the money to pay their bills and has agreed to a restructuring that will cost it hundreds of millions of euros while reducing its chances of getting cash out of the parks for years to come. Euro Disney announced a tentative agreement with banks for the restructuring three weeks ago but withheld details until July 2, 2004. Euro Disney, which has already missed several deadlines to resolve the debt crunch, said that a number of creditors had rejected its most recent debt restructuring plan but had now agreed to put back the deadline for an agreement for two months until September 30. The shareholders were asked to buy as many as two new shares for every three they now own or face a dilution in their ownership of the company. The ultimate success of the restructuring will hinge on the willingness of investors to buy these new shares, because apart from this rights offering, it appeared that no one other than the U.S.-based parent company had agreed to put new money into Euro Disney. Its problems were compounded by the admission that it expected a "significant increase" in losses for the year to September. It blamed the poorer performance on a fall in the occupancy rate at its hotels as well as increased operating costs. The French state-owned creditor Caisse des Dpots et Consignations agreed to defer the receipt of some money that it is owed and to subordinate some debts to other creditors. Bank lenders agreed to defer 300 million, or $366 million, in principal payments for more than three years. But they were not required to make interest concessions and will get some debt repaid as soon as the restructuring is completed. Such was the agreement.

A restructuring 10 years ago had assumed that growth and inflation would solve the problems, but they did not, and that made this year's (2004) restructuring inevitable. Negotiations over the restructuring were prolonged and are not finished yet. Andr Lacroix, the chief executive of Euro Disney, said he hoped that all lenders would approve the plan by July 31. The deadline, he said, is necessary for the company "to execute our strategy of adding exciting new rides and attractions to fuel long-term growth." Euro Disney did not disclose how much of the 250 million to be raised in the rights offering will go to capital improvements, but it was clear that not all would be available. Some would go to debt repayment and more to pay fees owed to the parent company. Euro Disney suffered heavily from the drop in tourism and travel after the September 11 attacks and has run up debts of more than 2 billion. Walt Disney established Euro Disney as an independent company, partly owned by the parent but not consolidated with it on financial reports. This meant Euro Disney paid the parent a variety of fees, licensing and lease revenue to provide the parent with a steady stream of income no matter how profitable the subsidiary, which is traded on the Paris stock exchange. But changes in accounting rules have forced Disney to consolidate the subsidiary, even though its equity stake is just 41 percent, including some securities that will be converted this month. The restructuring forced Disney to put up more money and to forgo some payments it was entitled to receive. Under the plan disclosed, the parent agreed to invest 100 million in new shares and to provide a 150 million credit line to the subsidiary for seasonal needs. In addition, 110 million that Euro Disney owed the parent in short-term borrowings will be converted into long-term debt. During the same period Euro Disney officials also conducted several emergency crisi talks with bankers and credit backers, the discussions reached the head during the month of March 2004, when the Corporation decided to give their lenders an ultimatum. They agreed to provide operating expenses till the end of month, but unless the banks agreed to restructure the Parks 1 billion in loans, the Walt Disney Company would simply close the park and pull their hands off the entire European venture, leaving the bankers with a bankrupt theme park and a massive expanse of virtually worthless real estate. In response to this the bankers , faced with no other alternative effectively agreed to write off virtually all of the next two years worth of interest payments and granted a further three years postponement of any loan payments. In return the company also wrote off $210 million in unpaid bill for services and paid a further $540 million in exchange for a 49% stake in the estimated value of the park, as well as restructuring its own loan payments of $210 million for new rides of the same worth at the park.

In 2005 and 2006, 25 million a year in fees payable to the parent will be deferred. That could rise to 50 million from 2007 to 2009 and then stay as high as 25 million a year through 2014. Originally, Euro Disney was to pay 290 million in 2006 to effectively buy theme park assets from the parent. Now those assets will be owned by a new company, with the Disney parent owning a minority stake and the rest held by Euro Disney. The effect will be to increase the parent's stake in Euro Disney, although the amount of the increase could not be determined. Euro Disney shares were trading at 38 cents. They were as high as 25.18 in 1992, a few weeks before the first theme park opened. In the 1994 restructuring, Prince Walid ibn Talal of Saudi Arabia bought shares at 1.52 each. He is still a major shareholder but has not taken part in the negotiations on the current restructuring. Rights offerings are usually priced at a discount to the market to give investors an incentive to buy. If the planned offering were priced at 35 cents, it would require the sale of 714 million shares, which would raise the total number of shares outstanding to about 1.8 billion. The banks agreed to try to sell the rights offering before next March 31, but the agreement allows them to refrain if market conditions are unsuitable. The company said it has sufficient funds to take it through until the end of September, with cash and banking facilities totaling almost 63m, but said it would not be able to meet payments falling due after that if no agreement, which requires unanimous approval from creditors, has been reached. It its third-quarter trading update, Euro Disney said total revenues fell 1pc to 740m but, while theme park revenues rose 4pc to 366m, turnover from its hotels and Disney village operations slumped 5pc to 291m. For the whole of last year the group - 39pc-owned by the Walt Disney Corporation posted a loss of 56m. Nevertheless, Andre Lacroix, Euro Disney chairman, said: "Our revenues for the first nine months reflect a relatively strong performance in an otherwise soft market for European travel and tourism. "We remain confident concerning the growth potential of Disneyland Resort Paris, the number one tourist destination in Europe." It attracted more than 100m visitors in 2001 despite being dogged by financial problems since it opened 12 years ago. Shares in the group fell 13pc to 0.27 from 0.31 on the Paris stock exchange. On 29th September 2004, Euro Disney, said it had won agreement from all its creditors on a modified debt restructuring plan, including a 250m (170m) capital increase, designed to haul it back from the brink of bankruptcy.

The company, struggling with 2.2bn debt, said all its creditors had agreed to a plan hammered out between it, 39% shareholder Walt Disney and the French state-owned bank CDC, along with Credit Agricole and BNP Paribas. Euro Disney has been on the verge of bankruptcy since August 2003, when it said it was talking to its banks about restructuring its debts. The company had opened a second park, the Walt Disney Studios, on the doorstep of the original Magic Kingdom. The move increased overheads but failed to bring in enough extra visitors, so the operator of Europe's biggest tourist attraction struggled to turn a profit, let alone service its debt. At the end of June, Euro Disney penciled in terms that would allow it to keep functioning. The plan involved a 250m rights issue, and the deferral of interest and royalty payments to Walt Disney for use of Mickey Mouse and other characters. But the plan got a thumbs-down from hedge funds that had bought 25-30% of Euro Disney's distressed debt from its banks. Euro Disney said that it had reached an 11th-hour deal with its creditors on a modified debt-restructuring plan that the financially troubled theme park operator hopes will enable it to avoid bankruptcy. The company, which operates Disneyland Paris and is 39 percent owned by Walt Disney, said it had received unanimous approval from its creditors for a restructuring of its 2.2 billion, or $2.71 billion, in outstanding debt that includes significant changes to a proposal made that was approved in June by its main lenders Crdit Agricole, BNP Paribas and Caisse des Dpts & Consignations. The new terms include an agreement by Euro Disney to pay a further two percentage points of interest on about 450 million worth of so-called senior debt, and moves up the anticipated final repayment deadline by two years to 2012 from 2014. Walt Disney and the French state-owned Caisse des Dpts have also agreed to forgive a further 30 million of repayments on some of the company's most high-risk debt, said Pieter Boterman, a Euro Disney spokesman. The announcement came just 48 hours before a Thursday deadline for a deal. Euro Disney warned last month that it had just enough cash and credit lines from Walt Disney to allow it to operate until that Thursday. Some of the company's creditors, notably hedge funds holding about 150 million worth of the company's bonds, reportedly had been holding out for more favorable terms. Jeffrey Speed, Euro Disney's chief financial officer, said the modified agreement would "provide significant liquidity, including measures intended to mitigate the adverse impact of business volatility, as well as capital to invest in exciting new rides and attractions that are essential to our long-term growth."

The company said it planned to move ahead with a previously agreed-upon capital increase by the end of March. That plan involves the sale of 250 million in new stock to shareholders, of which Walt Disney has agreed to buy 100 million worth. Other elements of the original restructuring plan remain unchanged , including a 150 million line of credit from Walt Disney and an agreement by that company to waive royalty fees for the use of Mickey Mouse and other Disney characters. Euro Disney shares were suspended from trading in Paris on Tuesday pending the announcement of the debt deal. The shares last traded at 32 cents, up significantly from the 22 cents they hit Aug. 10, shortly after an Aug. 2 deadline for a deal with creditors was extended to Thursday. Euro Disney is struggling to attract visitors amid continued weakness in the European tourism market. The company reported last month that revenue for its third quarter ended June 30 fell 3 percent from a year earlier to 267 million.
Sources: http://www.nytimes.com/ , http://www.telegraph.co.uk/, http://www.theguardian.com/