View from City Road: Euro Disney on a roller-coaster

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The Independent Online
Presumably shareholders in Euro Disney were fully aware when they bought into the group that they were investing in a Mickey Mouse company but any lingering doubts should have been dispelled by yesterday's admission that it and its parent are finally talking about how best to raise fresh finance.

The Paris theme park is on course to make losses for at least the next two years, has gearing of 350 per cent and insufficient facilities to finance the second phase of its development, believed to be the only way the first phase will become profitable.

Moreover its operating relationship with the Walt Disney Group, which holds 49 per cent of its equity, is such that it, not Euro Disney's other shareholders, are the main beneficiary of any improvement in trading.

Optimists argue that the second phase, which will add a conference centre and second theme park, and which should be complete in 1996 (assuming government go-ahead) will boost dismal hotel occupancy levels and provide a more all-year attraction.

The second phase will cost about Fr8bn ( pounds 1bn) to build. As of last December Euro Disney - which has about Fr20bn of borrowings - had additional banking facilities of about Fr4bn, and around Fr2bn in short- term investments and cash.

It is however loosing money at an alarming rate, as its Fr1bn of half- year losses demonstrate. In the short term Walt Disney, which has the balance sheet to take the pain, may face the inevitable and fund, or help to fund, both current operating losses and the key second stage of development. But as its determined approach to its management fee illustrates, where it has agreed only to defer not waive its charges, it will extract its ounce of flesh in return.

As with that celebrated Euro-flop, the Channel tunnel, it may well be that the Euro Disney project will eventually be a success in terms of its popularity with the paying public.

The likelihood that it will prove an equal success for its shareholders is extremely dim. Yet the shares stand within a whisker of their flotation price. The net asset value, about 40 per cent of the share price, might make a good investment benchmark.