The American Disney, 49 per cent shareholder in Euro Disney, is collecting tens of millions in management fees and royalty payments while the size of the first dividend - if any - to outside shareholders is in doubt.
'It has not yet been decided whether there will be a dividend or not for this financial year,' a Euro Disney spokesman confirmed this weekend. 'The payment will be decided in December and will depend on the level of losses.' If the company misses its first payout, its shareholders meeting next February is certain to prove stormy.
At the time of the 1989 share flotation, Euro Disney indicated it might pay a dividend of 17p a share in the first year. But this assumed it made distributable profits and the company reserved the right not to pay a dividend at all.
To the dismay of shareholders, Euro Disney shares have more than halved to 798p from their level of 1,684p a few weeks before the theme park's April opening.
The American Disney cut a remarkable deal for itself in setting up its first European park. Euro Disneyland amounts not only to a franchise operation but to one in which the franchise owner calls nearly all the shots.
Disney receives royalties of 10 per cent off the top on income from admissions, rides, and parking plus 5 per cent on food and drink sales and hotel income.
Disney receives a base management fee rising from 3 to 6 per cent of total revenues plus potential payments of around 40 per cent of cash flow (not profit). It also receives a fixed 35 per cent of profits on selling hotels at the theme park.
Disney cannot lose its management contract, except in extreme circumstances, and keeps it even if it sells most of its shareholding.
Disney is entitled to have all its expenses paid.
Disney is free to cut its shareholding from 49 per cent to 16.6 per cent any time it chooses. Even after the share slide, its stake is still valued at pounds 690m.
Disney in effect paid only pounds 71m in cash for this holding versus the pounds 600m plus that public shareholders paid for 51 per cent. The Americans' initial costs were largely paid by the flotation proceeds.
American Disney is thus virtually guaranteed huge earnings irrespective of whether Euro Disney shareholders see any reward. And if the theme park is successful the take of the self-styled 'Imagineers' will soar.
On the company's own projections, if Euro Disney makes pre-tax profits of pounds 176m in 1995, American Disney stands to collect pounds 194m in royalties, fees and dividends. But outside shareholders would collect dividends of just pounds 47m for the year.
Those who bought Euro Disney shares in the flotation and still hold them would, as the chart shows, have done virtually as well by opting instead for Walt Disney, even though the American shares have performed poorly on Wall Street since 1989.
Euro Disney shares have slightly outperformed in capital terms but shareholders, unlike those with Disney shares, have received no dividends since 1989. Some analysts believe that Disney's share of Euro Disney's revenues, cash flow and profits will make it the better bet in the long run. Neither Euro Disney nor Disney in Burbank would comment on the size of royalty and management fees likely to cross the Atlantic.
Attendances have proved disappointing, and Disney's Imagineers were recently forced to admit that far from the projected profit in year one, Euro Disney will make a loss. The spokesman would not comment on likely losses but maintained that July and August trading had been good.
The shares are now not much above the 707p 1989 flotation price, with the company likely to lose up to pounds 30m in the year ending this September, Lindsay Russell of the brokers Nomura Research forecast. Even this miserable tally would have been worse without first-half earnings from interest on a fast-disappearing cash pile.
'In order to have hit their targets Euro Disney would have had to be chock-a-block full on some days in the summer but I think there has been one day only when they had to close the gates on the crowds,' Ms Russell said. Euro Disney responded that it had closed the gates on ' two, three or four days' since the April opening.
Ms Russell forecast that next year Euro Disney will lose around pounds 75m pre-tax against earlier hopes of a profit of more than pounds 80m. 'Neither we nor Euro Disney yet know how bad the winter months will be for attendances,' she said. 'There is no case for buying the shares and if they fall through the issue price they could go down to 500p.'
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