Group #8:

Diyar
Saltanat
Meruyert
Dina
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Case Background
 1984. Greenmail – Hostile takeover attempt
by Steinberg
 Takeover is unacceptable
 “Poison Pill” taken by Disney: Arvida Corp.
 Tender for Disney Stock: $67.50 with
Gibson, $72.50 without it
 Two options for Disney:
 Fight
against takeover in court
 Repurchase the stock

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 Profitability Indicators
30% Gross Profit Margin

Operating Profit
20%
Margin

Net Profit Margin

10%

ROE
0%
1979 1980 1981 1982 1983

Steady decline in profitability

3
 Liquidity Assessment
Current Ratio
4.50
4.04
3.48
3.00
2.52

1.50
1.11

- 0.14
1979 1980 1981 1982 1983

Liquidity declines at compound rate of 85.45%!

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 Solvency - Leverage
Total Debt/Total
Current Ratio Assets
50%

41%
39%

28%
25%
20% 20%

0%
1979 1980 1981 1982 1983

Increasing reliance on debt financing

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 Analysis by Segments
Operating Profit, mln$
197
200

150 129 134

100
50 48 57
50 35
20
0
-34
-50 1981 1982 1983

Entertainment&recreation Motion pictures Consumer products

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 What Happens to EPS?
EPS components, $

5.00

Paid Out as Dividends

4.00

Reinvested in the Company

3.00

2.00

1.00

-
1965 1967 1969 1971 1973 1975 1977 1979 1981 1983

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 Stock Price Determination

The Stock Price History

Apr.1980 - Feb.2009

©2009 Google. http://www.google.com/finance?q=NYSE%3ADIS

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 First option: purchase first
 Try to inflate the price of shares by buying
them back on the market
 Blended tender price =>
 Market price goes up
 Blended price should be substantially
higher than the bid price (of $67.50 or
$72.50)
• Time value of money
• Market inherent risks
 Notrealizable in our case because of the
amounts involved
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 Option two: repurchase from
Steinberg
 The regulations set the repurchase price
ceiling as average price for 30 days
before the greenmail.
(S.1323 amending section 14d of the Securities Exchange Act of 1934)
•We can assume the average price for last
month from the Exhibit 14: $62
•That’s definitely not enough to attract Steinberg
•We need to give some premium above the
price he paid

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Determination of
Repurchase price
 The dividend growth model provides no meaningful numbers,
have to use another approach
 The M&A theory suggests to pay a premium during takeovers
to buyback the shares that should be sufficient to
 Cover all transaction costs of the raider
 Provide him with his expected rate of return
 In a real life circumstances these is determined during the
negotiations. For now, we can assume these numbers to be
$0.50 per share of transaction costs, and a 2-3% rate of return
on this transaction (not annual).
 The repurchase price would be $69.35-$70.03 with Gibson
and $74.45-$75.18 without it.

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Who’s Fault: Ron Miller?

 Is a former professional American

football player, the son-in-law of Walt
Disney, and a former president &
CEO of The Walt Disney Company
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GUILTY or NOT GUILTY?

Founded future Criticized leadership:

success: • not focused on the
 Create Touchstone operations of each
label business division
• concentrated on the
 Establishment of The
expansion of activities of
Disney Channel
real estate development
 Computer animation
• last thing they think of is
attempts their own shareholders

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 Ethics of Greenmail
 Disadvantages
 Discriminatory Payment
 Triumph of Certain Agents’ self-interest
 Transfer Effect
 “We are weak”

 Advantages
 The stress situation
that may lead to higher
economic efficiency

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 Recommendations
 Keep focus on Strategic Business Units
 Drop the Real Estate segment
 Use available proceeds for development of Film
entertainment and Television
• Attract more professional staff in this industry
 Change the management of the company
 Change dividend policy => retain more capital
for company’s future growth
 Insure the future possible takeover attempts

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Thank You for
Listening!

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