1

Group #8:

Diyar

Saltanat

Meruyert

Dina

2

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

3

Profitability Indicators

Steady decline in profitability

0%

10%

20%

30%

1979 1980 1981 1982 1983

Gross Profit Margin

Operating ProfitMargin

Net Profit Margin

ROE

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Liquidity Assessment

Liquidity declines at compound rate of 85.45%!

Current Ratio

4.04

3.48

2.52

1.11

0.14-

1.50

3.00

4.50

1979 1980 1981 1982 1983

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Solvency - Leverage

Increasing reliance on debt financing

Current Ratio

20% 20%

28%

39% 41%

0%

25%

50%

1979 1980 1981 1982 1983

Total Debt/Total Assets

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Analysis by Segments

Operating Profit, mln$

129 134

197

3520

50 48 57

-34-50

0

50

100

150

200

1981 1982 1983

Entertainment&recreation Motion pictures Consumer products

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What Happens to EPS?

-

1.00

2.00

3.00

4.00

5.00

1965 1967 1969 1971 1973 1975 1977 1979 1981 1983

EPS components, $

Paid Out as Dividends

Reinvested in the Company

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Stock Price Determination

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

The Stock Price HistoryApr.1980 - Feb.2009

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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

Not realizable 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 success:

Create Touchstone label

Establishment of The Disney Channel

Computer animation attempts

Criticized leadership:• not focused on the operations of each business division• concentrated on the expansion of activities of real estate development • last thing they think of is 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 Thank You for Listening!Listening!