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What's next for EuroDisney SCA? A final financial fix or an abrupt bankruptcy?

What's next for EuroDisney SCA? A final financial fix or an abrupt bankruptcy?

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This is NOT going to be pretty, folks

I mean, heads will roll. Egos will be crushed. Tens of millions of francs will be thrown at this problem. And -- undoubtedly -- someone's interests will be lost. Most likely DLRP's small-time investors, the ones that have the most to lose in this situation. And let's not even talk about what may happen to the resort's hourly cast members. Who will mostly likely bear the brunt of whatever cutbacks come their way.

But make no mistake, people. EuroDisney SCA (the company that actually runs the Disneyland Paris resort) is in BIG trouble right now. It's on the verge of one of those "now or never" situations. Meaning that -- if EuroDisney SCA doesn't get its financial house sorted out soon -- this resort really could close.

I know, I know. There are those of you who will undoubtedly think that I am just doing a "Chicken Little" impression. Who will say that I am just one big coming attraction for Disney Feature Animation's Summer 2005 release by walking around and saying that "The sky is falling! The sky is falling!" I mean, EuroDisney SCA has obviously faced serious financial problems in the past and still managed to survive. So it just stands to reason that the Disneyland Paris Resort will be able to weather this crisis as well. And that Disney's two Parisian theme parks will remain open and continue to entertain visitors for years yet to come.

Well, don't be so sure, folks. You see, the situation that EuroDisney SCA is facing right now is very different from the ones that this corporation has faced in the past. Which is perhaps why Andre La Croix, EuroDisney SCA's CEO, has tried to put the Disneyland Paris resort's financial problems right out in the front window. So that none of the parties involved can possibly ignore the dreadful situation that the company finds itself in right now.

That (to outside observers, anyway) would seem to be the tactic that La Croix has in mind. By making sure that the media is made all too aware of EuroDisney SCA's pressing financial problems, Andre is hoping that all of DLPR's bankers, the Walt Disney Company (which still holds 39% of EuroDisney SCA) as well as Saudi Prince Al Waleed (who reportedly has a 17% stake in the resort) will finally be forced to deal with this situation, find a final solution ... or risk bankruptcy!

"So what are the possible bail-out scenarios?" you ask. Well -- with $2.5 billion in debt, a loss of $110 million during the first quarter of this year as well as a severe liquidity problem -- when the waivers granted by the resort's lenders expire on May 31st, EuroDisney SCA may have no choice but to shut its two theme parks down, close all six of its on-site hotels and send everybody home.

Which -- given that the Disneyland Paris Resort theme parks are experiencing a 6% increase in attendance levels this year, (Due to strong sales of the resort's park hopper tickets, which allow DLRP guests to move freely from one theme park to the other) and that visitor spending remains on good levels -- has got to be kind of maddening for the resort's current management team. Given that the theme parks' performance is improving just as EuroDisney SCA has begun to circle the drain.

Okay. I know. The above paragraph lays things out in rather simplistic terms. And this is obviously not a very simple situation. But -- if one were to just take a cold-blooded look at the numbers -- anybody with a minimum of business sense can see a scenario unfolding where the smartest thing to do might be to allow EuroDisney SCA just to crash and burn. And then -- like a phoenix -- a new management company could then rise up out of the ashes and effectively pick up the pieces. Take over the day-to-day running to DLRP's theme parks, its shopping village, the hotels as well as the resort's extremely lucrative Val d'Europe complex.

For most of the parties involved here, this would be the ideal solution: Giving the Disneyland Paris resort a brand new start. Wipe the slate clean by removing the resort's enormous debt load. Which would then allow the theme parks to start making money almost from Day 1. Not to mention creating a more simple and friendly management structure for the resort than EuroDisney SCA has right now.

What? You haven't heard about EuroDisney SCA's almost Byzantine financial and management structure? Sometime try to get ahold of one of the corporation's annual reports (or -- better yet -- download the pdf version from the eurodisney.com website). Then take a look at that diagram which shows the incredibly intricate financial and management structure that Gary Wilson (who was CFO -- Chief Financial Officer -- of the Walt Disney company -- when the deal to build and fund EuroDisney was originally put together) set up. Wilson deliberately structured this deal so that -- even though the Mouse had a minority stake in this European project -- it still had a major say in how things were run at the resort. (I swear -- if you stare long enough at this financial diagram -- eventually you'll find Waldo. Anyway ...)

And let's not forget about all those royalty payments that EuroDisney SCA was supposed to be sending back to its mother company for licensing fees. Not to mention the enormous amounts that the Imagineers charged EuroDisney SCA during the project's pre-opening design and construction phase.

Now Wilson conceived EuroDisney's finacial plan in a way that was quite common for American corporations in the mid and late 80's. Which might have proved to be very lucrative for the Walt Disney Company and the project's investors if the world hadn't suddenly been plunged into that enormous recession in the early 1990s. Which resulted in DLRP guests not following the spending patterns that Disney had initially hoped for (which was to have visitors come spend several days at EuroDisney and stay in one of the resort's six hotels), but -- rather -- to have people take the train out to EuroDisneyland in the morning, tour the park, then head back to their lower-priced hotel room in Paris that night.

Given that most JHM readers are no doubt aware of how rough the EuroDisney resort had it during the project's first year of operation, I won't rehash that story here ... Other than to say that once the "French regime" (I.E. Philippe Bourguignon, the second president of the company as well as his successor, Gilles Pellisson) took over the day-to-day running of the resort, the theme park seemed to stabilize and slowly come out of its death spiral.

The only problem was ... These fixes that were put into place (EX: delaying royalty payments) were just temporary. And that -- due to the resort's crushing debt load -- EuroDisney SCA was never really able to turn a profit. Just keep DLRP's losses to the minimum.

Of course, hopes were high that -- once the Walt Disney Studios (the movie-themed theme park that was originally supposed to have opened right next door to Disneyland Paris in the mid-1990s, but kept getting pushed back and scaled down to make the project more affordable) was open -- that the resort's awful financial situation would finally turn around.

But -- instead of finally creating a reason for DLRP visitors to stay overnight in one of the resort's six hotels -- what the Walt Disney Studios did (And let's be honest here, folks. This small movie-themed theme park is arguably is the least attractive as well as the worst received park in Disney history. And -- yes -- I'm taking DCA into consideration when I make that statement) was cannibalize attendance from the Disneyland Paris park next door.

Don't believe me? Then let's look at the combined attendance for both of these theme parks for 2003, which was 12.5 million guests. Which seems sort of snazzy, until you realize that the Disneyland Paris resort had 12.7 million visitors back in 2001. And that was back when DLRP only had one theme park!

So -- as you can see -- the situation that La Croix and Co. are now facing is an extremely complicated one. One where it would seem that there are no simple solutions. So -- taking all that into consideration -- can you now understand why the idea of just wiping the slate clean (I.E. having EuroDisney SCA admit defeat and declare bankruptcy) has such strong appeal?

So what's stopping EuroDisney SCA from putting a reorganization plan like this into play? Obviously the fact that most of the company's investors would -- under a plan like this -- lose most, if not all, of their investment. Not to mention all of the negative publicity that the Disneyland Paris resort would receive as a result of even attempting a maneuver like this ... Well, that's got to be giving Andre some pause. Making him think twice before hitting that "reset" button.

Of course, there's the remote possibility that Michael Eisner that -- rather than having the Walt Disney Company associated with what could be a record-breaking bankruptcy -- might finally open the Mouse's purse strings and pour the hundreds of millions of francs necessary into a revival project for this resort. Of course, given that Roy Disney and Stanley Gold are still out there circling, determined to make the most of Michael's every mis-step ... It's not too hard to believe that the "Save Disney" people would try to spin any DLRP rescue efforts as throwing good money after bad.

And let's not forget about EuroDisney SCA's bankers. Who really find themselves torn in this situation. Because (obviously) of the huge debt that they're owed (money that few of these financial institutions now believe that they ever have a hope of recovering) as well as all the money that Disneyland Paris and Walt Disney Studios still generate every day.

And then you have the two wild cards in the bunch. The two gentlemen who -- to date -- have had the least to say publicly but privately must be forming their own resort rescue plans: Jay Rasulo -- EuroDisney SCA's former head honcho, now president of the entire Disney theme park empire -- and Andre La Croix -- the new president of EuroDisney SCA, a guy who's got a real gift when it comes to marketing DLRP as well as reaching out to the media. Obviously these two guys have a real interest in pulling this troubled resort back from the brink.

Of course, following in the great Disney tradition, maybe someday soon Disneyland Paris' prince will come. Prince Al Waleed, to be exact. Perhaps Rasulo and La Croix can persuade the Saudi billionaire to make yet another investment in DLRP. This time around, though, Jay and Andre may find that Al may not be such an easy sell. Given that the Prince has been quoted in the press as saying that "... this time, we need to fix this problem once and for all."

Okay. I know. This is already a very convoluted story. (And I haven't even mentioned all of the rumours that have been flying around about what French President Jacque Chirac might be willing to do for his good, close, personal friend, Michael Eisner.)

But this is -- you have to admit -- a distinctly Disney story. I mean, think about it, folks. You've got a prince, a magic kingdom in serious peril, a situation that only a major miracle will be able to resolve. It's going to be really interesting to see if EuroDisney SCA is actually able to pull off its very own happy ending.

In the meantime, I'll be keeping a close eye on this whole situation for JimHillMedia.com as this story continues to develop.

That's it for now, folks. TTFN!

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