Ailing Euro Disney Given Sweeping Bailout Package

Euro Disney, the money-losing resort that has become the most popular paid tourist destination in Europe, was rescued Monday by a sweeping financial package that will bring important concessions from lenders and its American parent, the Walt Disney Co.

Minutes after the announcement, Euro Disney Chairman Philippe Bourguignon opened the company’s annual meeting at the park, using the news to mollify several hundred unhappy stockholders seated in the vast arena of Buffalo Bill’s Wild West Show.

“This is a great relief to all of us,” said Bourguignon, standing in front of the replica of an Old West mountain. “This will allow us to start off again on a solid basis. We can proceed with our operations now and do it calmly.”

Analysts generally hailed the rescue package as an important transatlantic compromise, which will help the 2-year-old park survive the current European recession and the management decisions that some believe contributed to its rocky start. It still must be approved by each of the creditor banks and Euro Disney’s stockholders, though that is considered a formality.

Walt Disney Co. Chairman Michael D. Eisner, who was forced to invest even more deeply in the park to ensure its survival, said the “fair and economically sensible restructuring” will “ensure that this resort . . . will operate on a sound financial basis. We are extremely confident in the park and its future.”

The deal will pump $1.03 billion into the company through an issue of new stock. Walt Disney, which owns 49% of the venture, will make a $500-million infusion by taking the same share of the new stock issue. Disney’s stock dropped on the news, falling $1.125 to $45.875 in trading on the New York Stock Exchange, although some Wall Street analysts welcomed the deal because Euro Disney’s troubles have been such a huge, time-consuming headache for Disney executives.

Proceeds from most of the new stock, which will increase the outstanding shares from 170 million to 800 million, will repay Euro Disney’s bank loans, cutting the current debt in half, to about $1.6 billion.

Under the plan, the Walt Disney Co. also will eliminate its royalties and management fees for five years, reinstating them later at a reduced, still unspecified, rate. For their part, the 60 creditor banks have agreed to forgive 18 months of interest charges and defer all payments on principal for the next three years.

Antoine Nodet, a securities analyst at ING Bourse in Paris, said the restructuring “is a good deal for the lenders, and it will make sure that the park survives.” He added, however, that the sale of so many new shares will significantly dilute the current stockholders’ share of any future profits.

The park itself has been a success with visitors, drawing 19 million people since its April, 1992, opening, despite early suggestions that the inclement weather of Northern Europe would hurt attendance. Euro Disney’s own surveys indicate that 80% of the guests leave the park satisfied with their visit, and 90% say they will return.

“The weather is not a serious element and, frankly, I don’t want to hear anything more about it,” Bourguignon told stockholders at the park on Monday. A bigger problem, he said, is the unwillingness of Europeans to come to Euro Disney except during school vacations.

But Euro Disney’s financial difficulties have stemmed from the deep recession in Europe that struck soon after the park opened, the strength of the French franc against other European currencies and high interest rates. The sluggish real estate market has made it impossible for the company to carry out its original plans to quickly begin selling off its hotels. And those hotels, with a 55% occupancy rate, have suffered because visitors are staying for shorter periods than had originally been expected.

Long a Euro Disney cheerleader, Eisner even had harsh words for the park’s financial performance in Disney’s latest annual report, calling it “dreadful” and rating “barely a D” on Disney’s report card.

Those factors led to speculation that Euro Disney might even close this spring. Disney said in December that it would stop funding Euro Disney’s losses at the end of March unless a restructuring agreement could be worked out with creditor banks, and Eisner was quoted as saying that the resort, which has been losing about $1 million a day, could be shut.

However, many observers saw Eisner’s threat as a negotiating ploy with the banks because pulling the plug on the park would have seriously hurt the image-sensitive company’s global stature.

Among other things, Euro Disney has introduced lower, off-season entry fees, cut hotel room rates and slashed prices of goods and food inside the park. It also has trimmed 900 jobs, most of them in administration. And the company has begun to expand its marketing efforts in Europe, forging links with travel agencies and devising strategies to bring in more children, who now account for just one in four visitors.

Euro Disney stockholders on Monday generally welcomed the financial rescue plan, and most praised Bourguignon, who took over as chairman last year. But some stockholders harbored deep anger with the company, whose share price has fallen on the French bourse from a high of nearly $30 at the park’s much-touted opening to about $6 today.

“At the beginning, we trusted Walt Disney (Co.),” said Guy Jacquet, a Parisian who owns several thousand shares and belongs to a group of dissident stockholders. “But we were ripped off. Everything has been badly done here since the beginning. . . .”

Investor anger seemed to center on a feeling that stockholders had not been kept properly informed of the company’s negotiations with the Walt Disney Co. and its creditor banks.

Some also complained that Walt Disney was able to acquire its 49% interest in Euro Disney for $1.60 a share while the opening price to ordinary investors had been 10 times that. Company officers noted, however, that the favorable share price for Walt Disney had been declared clearly at the outset.

Euro Disney shares fell 2.95 francs to close at 33.85, less than half the price they traded at when the company went public in 1989 and far below the high of 164.30 francs in March, 1992.

The long-simmering tensions between Euro Disney’s American roots and its European investors also surfaced during the annual meeting. Some investors complained that a rigid, myopic American management style, at least initially, had contributed to the park’s troubles.

Times staff writer James Bates in Los Angeles contributed to this story.