Disney, IEP Buy Wrather in $152.3-Million Deal : Disneyland Hotel, Spruce Goose and Queen Mary Added to Magic Kingdom
Walt Disney Co. and a joint venture partner completed the $152.3-million purchase of Wrather Corp. on Thursday, giving Disney acres of land for a possible expansion of its Magic Kingdom in Anaheim.
The acquisition, approved at a special meeting of Wrather shareholders, also puts Disney in charge of the Disneyland Hotel and gives it an interest in the Queen Mary and Spruce Goose attractions in Long Beach.
Under the terms of the transaction, Industrial Equity (Pacific) Ltd. of Hong Kong joins Disney as a 50-50 partner in a new company that will pay $21 a share for all of Wrather’s 7.3 million publicly traded shares.
The joint venture partners also assume debts and other liabilities totaling about $100 million.
The sale transfers to Disney and IEP all of Wrather’s assets--including the 1,174-room Disneyland Hotel in Anaheim, which is located on about 36 acres leased from Disney until the year 2054. Wrather also leases and operates the Queen Mary and Spruce Goose and operates a tour, a hotel and other facilities related to those attractions.
Industry experts viewed the Wrather purchase as another move by Burbank-based Disney to expand its position as an operator of entertainment sites in Southern California.
In addition to a planned studio-tour and shopping complex in Burbank, the company has long been studying a major addition to its Anaheim theme park.
Wrather owns 26 acres south of Disneyland and has a long-term lease on 18 additional acres north of the hotel. With the acquisition of the Wrather land, Disney now has a total of 84 acres near the park that eventually could be used for expansion or perhaps for a retail and entertainment center.
“They need new attractions to keep up the level of interest,” said David R. Kinkade, a leisure-time specialist with the Costa Mesa office of accountants Laventhol & Horwath. “They’re eventually going to expand the park . . . and I think it will work well for them.”
Wrather shareholders overwhelmingly approved the sale, with 84% voting in favor at a special meeting Thursday.
Stockholder approval was all but certain because the deal already had received the blessing of Wrather’s two largest shareholders. The Wrather family and a “related party” in September had agreed to sell their 2.8 million shares, which represented 38.8% of the stock outstanding. IEP, which owned 27.9%, or about 2 million shares, also was committed to the merger.
Even so, two pending class-action lawsuits challenge the sale and contend that the $21-per-share price is too low.
But Henry Pollard, Wrather’s general counsel and a partner with Seyfarth, Shaw, Fairweather & Geraldson in Century City, called the lawsuits “meritless” and said “the board concluded the transaction is fair.”
During the half-hour meeting, Bonita Granville Wrather, chairwoman and widow of company founder J. D. Wrather Jr., told the 60 or so shareholders who attended that the sale “is best for the company and its shareholders. . . . Disney has great capabilities and will take our properties onto greater heights.”
Wrather’s founder, who died about three years ago, was an oil wildcatter. He built the Disneyland Hotel in 1955 because his close friend, Walt Disney, could not afford to finance both the new amusement park and a hotel.
Disney has long regretted not owning the hotel, which is operated by Wrather, and made bids in 1973 and 1987 to acquire it. Wrather has a longstanding contract with Disney for exclusive use of the Disneyland Hotel name.
With completion of the sale, Disney acquires the right to use the Disneyland name for other hotels. “We can do anything we want” to develop hotels, said Richard Nanula, Disney’s manager of acquisitions and strategic planning. Nanula added, however, that Disney has no immediate plans to develop hotels in Anaheim “because the market is not strong enough for us. . . . But it’s nice to have the flexibility.”
Disney executives confirmed Thursday that the Disneyland Hotel will be upgraded. The hotel has been showing its age and last month was downgraded from a Four Diamond to Three Diamond rating by the American Automobile Assn.
Nanula stressed that Disney has made no other specific plans for the Wrather properties. The company has until Feb. 15 to submit a business plan to IEP.
In papers filed with the Securities and Exchange Commission, Disney said its preliminary plans are to either keep and refinance the hotel or sell it and enter into a management agreement with the buyer.
Nanula said the “most logical” move is for Disney and IEP to jointly own the hotel, with Disney operating it.
If Industrial Equity rejects Disney’s business plan entirely, it can buy all the Wrather shares that Disney owns for about $77 million and pay Disney an additional $18 million because of a prior loan obligation. If IEP, on the other hand, decides it doesn’t want to buy Disney’s stake in Wrather, Disney must buy all the shares now owned by IEP for about $83 million.
Even if Disney or IEP ends up buying out the joint partner, Disney will manage the Disneyland Hotel for 20 years.
The future of the Queen Mary and Spruce Goose attractions is undecided. Several industry observers have suggested tie-ins with Disneyland--a possibility Nanula called “very unlikely.”
The joint venture also has an option to lease about 236 acres--most of it under water--near the Queen Mary. Although the parcel “could be used as a marina or filled to create land,” according to documents filed with the SEC, a Disney executive dismissed speculation about development in Long Beach as “wildly speculative” and “awfully premature.”
The SEC papers also indicate that Disney plans to propose selling all of Wrather’s oil and gas assets to an unidentified third party.
As long as Disney and IEP jointly own the Wrather assets, the new company will have a four-member board of directors, with two chosen by each joint venture partner. If IEP accepts Disney’s business plan, a fifth director chosen by Disney will join the board.
Wrather family members will retain executive positions in the joint venture for the time being and are under contract to serve as consultants through Dec. 31.
Industrial Equity is part of Brierley Group, a New Zealand-based investment concern with holdings in about 30 U.S. companies. It is controlled by Ronald A. Brierley, a New Zealand millionaire.
Industrial Equity last year began buying stock in Wrather, which has been unprofitable for seven of the past eight years. Eventually, IEP accumulated a 28% interest in Wrather and had indicated that it might buy more.
Disney stepped in, however, and initiated discussions that eventually resulted in the joint venture agreement.
According to Nanula, the marriage will last. “We have no plans to divide up any assets,” he said. “We’ll continue to operate as a joint venture.”
Some industry analysts, however, disagreed.
“It’s a temporary marriage of convenience,” said Blake Childs, an analyst in the Los Angeles office of Bateman, Eichler, Hill Richards. “The companies will go their separate ways once they’ve carved out what they want. . . . I don’t think Disney has any interest in doing anything as a joint venture--they basically want what Wrather had. And IEP basically wants to sell things off.”
