What type of debt did Disney offers to the public for sale?
According to the prospectus, the Walt Disney Company was offering to the public a debt in the form of notes. According to financial terms, a note is described as a financial security that usually has a longer term than that of bill but a shorter one than a bond. Similar to the bond it may be sold above or below value in the market. This financial security is in five different types including the book-entry, and fixed rate, for the principle sellers while floating rate, definitive, discount and zero coupon are sold by the agents (Walt Disney Company, 2008) . The organization is selling each of the notes at a value. In this regard, the Company will offer discounts or commission to individuals at a rate of 0.35% for the agents where the underwriters can sell them at the Original Issue Price less 0.20% and 0.13% discount when sold to other brokers. The terms of the notes include a purchase price of $2,000 or any integral multiple of $1,000 above the aforementioned denomination.
The notes will have the original date of issue as December 22, 2008 as per the agreed date with the Wells Fargo. The Company will offer additional securities on a daily basis and will attach significant terms to each of the notes provided. The date of maturity is on December 15, 2013 which is not a business day hence buyers will wait until the next business day to redeem notes (Walt Disney Company, 2008) . The floating rate, definitive, zero coupon and discount notes cannot be redeemed before the date of maturity. These notes may be redeemed at par, in part or as a whole depending on the option of the Company at any time on, after and prior to the date of maturity. The notes will bear interest from the original date of issue at a fixed rate of 4.5% per annum. This is offered upon the redemption of the noted. Interests are paid on the third Wednesday of the months March, June, September, and December.
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What are the various approaches Disney incorporated to ensure successful marketability of these securities?
In an effort to guarantee successful marketability of the securities, Disney employed the services of Clearstream and Euroclear to hold them and require them to develop an effective plan of performing seamless transactions in the sale of the securities (Robinson, 2014). Clearstream is a post-trade service provider in issues of settlement and custody of securities and asset classes among other related services (Walt Disney Company, 2008). It is based both in Germany and Luxemborg. Euroclear is the second of the two European International Central Securities Depositories that was developed as part of JP Morgan & Co. It is based in Belgium with a specialty in settlement of securities transaction, safeguarding, safekeeping and other asset related services of the securities (Robinson, 2014). In this regard, the two organizations are well equipped to provide the Disney Company with appropriate global market to sell their securities (Cane, Shamir, & Jodar, 2012).
With successful marketability in mind, these companies eliminated the physical movement of these securities such that they used the electronic book-entry system. The extensive reach of both Clearstream and Euroclear enables the widespread reach into domestic markets of different countries. Euroclear would take charge in lending and borrowing practices. A same-Day Funds Settlements System was also incorporated by Disney to ensure quick transactions (Walt Disney Company, 2008). Additionally, the Company allowed the use of numerous currencies and open the debt up in the different currencies. The investor would be allowed to purchase these securities as long as they could convert their currency into acceptable currency including the Australian dollars, Swiss francs, US dollars, South African rand, Euros and Canadian dollars (Walt Disney Company, 2008). This practice would enable the organization to deal with stable currencies in different parts of the world through minimizing losses that may be realized through unstable currencies (Robinson, 2014).
What is the dollar amount of debt Disney proposed to sell to the public?
The Disney Company as per the prospectus had agreed to issue a billion dollars worth of on global notes that would be sold by three underwriters who would purchase the securities in the following denominations below:
Citigroup Global Markets, Inc. $333,334,000
Deutsche Bank Securities Inc. $333,333,000
J.P. Morgan Securities Inc. $333,333,0000
These organizations would serve as the primary source of the securities. However, the public would be able to make purchases of the notes from a number of securities brokerage firms that are listed in the prospectus (Walt Disney Company, 2008). They include Banc of America Securities LLC, Barclays Capital, Bear, Stearns & Co. Inc., BMO Capital Markets Corp., BNP PARIBAS, Cabrera Capital Markets, LLC, CastleOak Securities, L.P., Citi, Credit Suisse, and Deutsche Bank Securities among other firms.
The notes may also be available to the public for purchase from any brokerage that has authorization or is under regulation to conduct business in the financial market. Furthermore, if the corporation is not licensed or regulated to engage in financial business, the organization’s main business is investing in securities only (Walt Disney Company, 2008). There are three terms whereby if legal entity meets two or more of them would be allowed to make sales of the noted to the public including:
It must have at least 250 employees within the previous fiscal year.
It must have an annual net turnover of more than €50,000,000 and significant proof provided through its annual or consolidated accounts (Walt Disney Company, 2008).
It must have a total balance sheet of more than €43,000,000 proven through the use of annual or consolidated accounts.
Following the realization of the above terms as a means of selling the global notes all underwriters will demonstrate to have represented and agreed that it has communicated and will only communicate an invitation to engage in investment activity received in connection with the sale or issue of the Notes (Walt Disney Company, 2008). This practice is within the meaning portrayed in the Financial Services and Markets Act 2000 (the FSMA) Section 21. The circumstances stated in Section 21(1) of the FSMA do not serve to the role of Disney Company. Each underwriter also identifies to have agreed that it has complied and will continue to comply with the applicable provisions of the FSMA law in reference to transactions and other activities related to the Notes particularly those involving the United Kingdom.
Did this amount increased or decreased from 2008 to 2010 and why do you think caused the changes?
The amount of securities issued by Disney Company experienced a significant increase between the year 2008 during the original date of issue and 2010 before the maturity of the security notes. One of the major factors that led to the significant increase was the daily issue of securities through agents including Goldman, Sachs & Co., HSBC, JPMorgan, Lehman Brothers, Loop Capital Markets, LLC, Merrill Lynch & Co., Ramirez & Co., Inc., RBC Capital Markets, RBS Greenwich Capital, Siebert Capital Markets, UBS Investment Bank, Utendahl Capital Partners, L.P., and The Williams Capital Group, L.P. among other brokerage firms around the world. Following the event of the global recession, Disney Company is among the numerous companies affected. The public who are depended upon to make purchases of the securities did not have strong purchasing power hence could not visit or buy the products and services (Walt Disney Company, 2008). This occurrence resulted in the dwindling of the company revenues hence the need to issue securities daily in an effort to increase capital that will sustain the daily operations of the company and its future plans (Babalola, & Abiola, 2013).
What percentage of the sales price did Disney nets after discounts and commissions? Did that amount decreased or increased from 2008 to 2010? What do you think caused this?
The global notes that Disney had issued for sale as security would be offered at a public offering price of 100%. In this case, the organization would allow the agents who sell these notes to take up a commission between 0.125% and 0.750%. In light of this, the expected net percentage of the sales price that the Company would earn after discounts and commissions would be between 99.875% and 99.250%. Through the estimations of the company, 2008 may be the highest earnings of the Disney Company where the notes were sold at a higher rate with minimal discounts and commissions.
However, during the period between 2008 and 201 the Company experienced a decreased net percentage of the sale prices. The significant financial uncertainty would prompt agents and underwriters to seek higher rates of commission and discounts when purchasing the global notes (Walt Disney Company, 2008). This practice shows the Company’s determination to ensure they sell off as many security notes that would enable the firm to accrue the required funds to meet the daily purposes of the company (Craig, & Amernic, 2008).
What did Disney state they would use the proceeds for from the sale of securities for?
The Walt Disney Company through the prospectus clearly indicated the means by which funds would be used after gathering up the revenue earned from the net sales. One of the major use for the funds collected would be carrying out general corporate purposes. In this case, the organization would ensure the funds are made available perform three primary general corporate practices (Walt Disney Company, 2008). These include, reducing the Company’s short-term indebtedness whereby the capital earned would enable the company to reduce the liabilities owed and to increase likelihood of increasing profitability (Donald, 2008). The money would also serve as a source of making acquisitions. The organization is aware that there are numerous corporations that require funding at this time of financial crisis and by purchasing them they would be an important source of increasing the profitable business practices. In addition to this, the Company would use the sales’ earnings to fund investments, extend credit from suppliers or contribute to its subsidiaries (Neuman, 2008). The proceeds may also be used specifically in other purposes that are included in the prospectus supplement. The firm may also use the funds for temporary investment before use. The amount and length of time that the proceeds will be applied depend primarily on the company’s funding requirements and that of its subsidiaries among other things at the time of issuing the proceeds and in any case if there are other funds available.
Did Disney 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 proceeds of the sale of the notes were used as per the reasons provided in the prospectus. However, if Disney did not use the funds as per the stated agreements, it is not liable to the investors (Walt Disney Company, 2008). The wording used clearly identifies that the organization has the authority to apply the funds received according to the means they require. The sale of securities to the public shows the Company’s intent to smoothen its operations through reducing debt and making wise investments. In the early stages of the prospectus, the risks are clearly outlined to those who wish to invest their money (Haslem, 2006). Some of the risks may be associated with the age or the firm, experience of the management staff and their involvement in the operations of the company which are described clearly. The firm ensures that this information is stated in detail for open communication with investors. In light of this, the company cannot be held accountable for use of funds in any other way other than that described in the prospectus.
References
Babalola, Y. A., & Abiola, F. R. (2013). Financial ratio analysis of firms: A tool for decision making. International journal of management sciences , 1(4), 132-137.
Cane, M. B., Shamir, A., & Jodar, T. (2012). Below investment grade and above the law: A past, present and future look at the accountability of credit rating agencies. Fordham Journal of Corporate & Financial Law , 17 (4): 1063-126.
Craig, R., & Amernic, J. (2008). A privatization success story: accounting and narrative expression over time. Accounting, Auditing & Accountability Journal , 21(8), 1085-1115.
Donald, D. C. (2008). Approaching Comparative Company Law. Fordham Journal of Corporate & Financial Law , 14, (1): 83-178.
Haslem, J. A. (2006). Indecent Disclosure: The Need for Normative Transparency of Mutual Fund Disclosure . Online, Retrieved from https://www.researchgate.net/publication/255699095_Indecent_Disclosure_The_Need_for_Normative_Transparency_of_Mutual_Fund_Disclosure
Neuman, R. (2008). Disneyland's Main Street, USA, and Its Sources in Hollywood, USA. The Journal of American Culture , 31(1), 83-97.
Robinson, M. (2014). Does Debt Restructuring Work? An Assessment of Remedial Action in SIDS. In Debt and Development in Small Island Developing States (pp. 207-218). Palgrave Macmillan US.
Walt Disney Company (2008, December 17) Prospectus: $1,000,000,000: 4.50% Global Notes Due 2013 . Pricing Supplement No. 1.
