The Walt Disney Company is a United States based company that specializes in international mass media and entertainment. The company began back in 1920 as a studio based in cartoon creations and animations. The company diversified its content and polished its production to grow significantly into the company it is right now. Walt Disney Company boasts of an amazing collection of entertainment choices. It is among the world leading brands that are loved and cherished by people all round the globe. The strong core competencies of the company, the good organizational ability, and innovative culture are the major strengths that have enabled the company to outsmart the competition and emerge as a leader in animation and the fantasy world. It is interesting to note that currently, the company is responsible for more than 50% of the entertainment industry. This is a clear indication of the leaps and bounds that the company has grown by since its inception as a cartoon studio. For continued business development, the company has had to venture into other fields that are different from media. The company has businesses in Parks and Resort, studio entertainment and also consumer products. This attempt was intended to achieve diversification. The current and the potential stakeholders of the Walt Disney Company were provided with a prospectus plan in 2008 that promised long-term stock ownership and was used to instill confidence among the investors to deal more with the company. The prospectus was also a step into the expansion of the company as it was meant to garner aid for the company to expand its businesses. The company boasts of unmatched quality content that has been the brainchild of the successful expansion strategies of the company. The prospectus presented by the company in 2008 tells a lot about the expansion strategies, marketing strategies, financial plans and business operations of the company.
1. Indicate the type of debt did Disney offers to the public for sale and discuss the various approaches Disney incorporated to ensure successful marketability of these securities.
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According to the issued prospectus, the securities that were on sale were issued same as the senior unsecured debts and thus were issued as senior debt securities. Later on, they were registered as 4.5% global notes with a due date in 2013 (Walt Disney, 2008). Since the company was seeking aid for its expansion strategies, there was a lot of capitalization on the marketing of these securities. Each note was entered in the definitive form and represented by the Depository Trust Company. These notes were also registered in the depository's nominee name.
Approaches used to ensure successful marketability
Distribution
The Walt Disney Company chose banks with great repute and appealing offers to their potential and current investors to act as their underwriters. These banks are well mentioned in the prospectus together with a number of notes that they purchased. The Citigroup Global Markets Inc. purchased more than the Deutsche Bank Securities Inc. and the J.P Morgan Securities Inc. In total, the principal amount of notes purchased by the banks was a billion. The process of distribution was effective, credible and reliable.
The risk factors
The prospectus made it clear that Walt Disney would be able to repurchase or to cancel the notes at will and at any time. There would be the redeeming or repurchasing of the sale of securities at the time of maturation. There were options provided for the investors to be able to redeem the securities at times that would be agreed upon by the company. In general, the terms would be unfavorable for the redemption of the securities before the time of maturation.
Marketing
The sale of the securities was conducted under the Securities Act. It was not conducted through the stock exchange but rather the company used brokers. The sale of the securities was on the secondary market. The company made sure that their securities were available to all who sought them.
2. List the dollar amount of debt Disney proposed to sell to the public. Indicate whether this amount has increased or decreased from 2008 to 2010. Discuss some potential causes of this increase or decrease.
The principal amount proposed to the general society was one billion dollars (Walt Dsiney, 2008). The prospectus indicates the underwriters who would purchase the notes as follows:
Citigroup Global Markets Inc. $ 333,334,000
Deutsche Bank Securities Inc. 333,333,000
J.P. Morgan Securities Inc. 333,333,000
Notably, the amount of debt was recorded to increase in between the years 2008-2010 since the company had continued to issue more notes and securities in the phase of economic depression witnessed in 2009. Evidence that the amount had increased between 2008 and 2010 is the fact that the company had sold bonds worth more dollars in 2012. The company witnessed a large boast with its other business: parks and resorts and there was an influx in the number of people visiting theme parks, and the sale of consumer products became lucrative. The company was able to pay off all her commercial debts, and as of 2009, there were no outstanding debts. The economic recession made the debts to be surrendered or repurchased as the investors sought redemption in fear of an economic crisis. There was a negative growth registered in the economy that caused a stir among the investors. Investors feared making losses or having their investments run to the ground by the economic downturn. The expansion projects launched in 2008 suffered a major deal. There was the sale of securities to pay off the capital expenditures. The company had to write off a large sum of money as losses because the Lehman Brothers investment bank went bankrupt.
3. Determine the percentage of the sales price Disney nets after discounts and commissions. Indicate whether this amount as decreased or increased from 2008 to 2010. Discuss some potential causes of this increase or decrease.
Brokers to the Disney Company received commissions and discounts of 0.35%. Mostly, the discounts and commissions offered range from 0.125 % to 0.750% thus after calculation, and the company remains with 99% of the sales. Notably, this amount has decreased between the years 2008 and 2010. This is because the average performance of the company in 2009 was not commendable and also the company was subject to a lot of financial uncertainties. 2009 was categorized by poor economic conditions that led to a drop in the net revenues. The economy slowed down and maintaining a business environment became difficult. The company relied heavily on the American market, and as a result, the economic recession made them have weak links in their marketing strategy. The US economy recorded a negative growth of 8% thus the average performance of the company was very low. The investors of the company were uncertain in the negative climate hence the company had to make larger investments and give heavier commissions and discounts to maintain the business environment and not lose their investors. The company expected to clear her debt, fund acquisitions and investments in different areas and this also contributed to the increase in discounts and commissions.
The entertainment industry also experienced a drastic change in consumer behavior that it took time and resources to adjust. There was the change in preference from DVDs to pay TV services and other digital mediums which were on demand. The change affected the sales of the company in that sector that their performance was poor. The company also needed to clear its short term indebtedness so as not have constraints along its path of expansion. However, the performance of the company improved in 2010 as there was a record of $ 3963 million in net revenue which was significantly a high increase from the previous year but still lower than in 2008 which had a $4427 million record.
4. Indicate what Disney stated they would use the proceeds for from the sale of securities. Discuss whether or not Disney was able to use those funds for the reasons stated in the prospectus. If not should Disney be held accountable by their investors? Why or Why not?
The Walt Disney Company mentioned in their prospectus their plans and intentions for the proceeds that would be generated from the sale of the securities. The company intended to channel the proceeds back to general corporate purposes. Among the corporate purposes, the company would use the proceeds to fund their acquisitions. Acquisitions are often a worthy investment as they are used to build on the weaknesses of the acquiring company and also to enhance their strengths. The prospectus also stated that the company would use the proceeds for clearing their short term debts and for the purposes of making new investments in extensions or credit contributions to the company’s subsidiaries. There was also the option of using these funds to meet the needs and wants stated in the prospectus supplement.
The nature of the prospectus was quite open, showing little to no restrictions on what the company would commit the proceeds to. It was not guaranteed that the funds would be used directly, but rather there were several conditions that would help determine the use of these funds. For instance, the funding requirements of the company together with the requirements of the subsidiaries would be a major indicator. The availability of the funds would also be a factor to be looked into together at the time of application of the proceeds. Disney used the funds as stipulated in their prospectus and therefore is not liable to any sanctioning by their investors. Had the company used the funds for any other issue different from what was stated, there would be a need for them to be answerable to their investor. It was also stipulated clearly that they would be able to buy back their notes at will or even cancel them. Looking at the company from the release of the December 19, 2008 Prospectus, the company has managed to add a few acquisitions and sponsor its expansion activities. It is interesting to note that companies employ a lot of jargon and shifty language when drafting their prospectus hence an investor should always be careful to know what they are getting themselves into before making the decisions.
In conclusion, Walt Disney Company has experienced a significant period of growth from its inception as a cartoon studio. It is a leading brand, and as such, there is a need for diversification. The company has specialized in the entertainment industry and related business and as such the prospectus was released to make sure that the company has enough aid as it seeks to expand. The prospectus states the intentions of the company and the expectations it has of its investors. Walt Disney mainly uses the secondary market in the sale of their securities. The company stands to make 99% from the sale of the securities however the amount has decreased over the years. The dollar amount of debt sold to the public has increased though, and the company is looking towards lucrative promises of expansion.
References
The Walt Disney Company 2008. Annual Report . Retrieved from: https://ditm-twdc-us.storage.googleapis.com/WDC-AR-2008.pdf
